An outbreak of common sense
There’s a wave of common sense flowing through some companies and their investment firm backers who have spent much of the past decade in a land of make-believe.
This land of corporate make-believe was one in which the normal troublesome objectives and requirements of business were relegated to a distant future. Objectives like providing a return for shareholders, or requirements such as making a profit. Instead, what mattered above all else in this business fantasy land was the need to grow a business as fast as possible, and sell it as quickly as possible. Growth was defined only as a number of customers, clicks, or shipments. Happy paying customers, profitability and cash flow, the bedrock fundamentals of any good business were of secondary importance. How can this have been so? Because these companies had their operations funded by venture capital firms who believed they were investing in new industries and companies with limitless growth potential, and that profitability would be achieved eventually. The problem is, that was a gamble, and one often based on no demonstrated track record whatsoever of the company being invested in having earned a profit from its operations. Business and gambling are not the same things in the real world. Business is not easy and requires skill, hard work, and the earning of profits.
The language and behaviour of many working in companies funded to pursue these gambles were pointers to the view they had acquired of the world: Angels and Unicorns. I’ve dealt with quite a few investors; I don’t think I’d describe many of them as angelic. Nor would I want to. Investors need a clear and measurable reason to invest, and a focus on profitability as the only thing which will enable sustainable long term growth of their investment. Using capital to shore up persistent losses in the hope that things will be better in the future is a fool’s errand.
So in Silicon-anythings all over the world, the fundamentals of good business are being re-discovered, and the new talk is of profitability, planned growth, and managing cash. Well, it’s not really new talk, it’s what most of us have been talking about for years. But with this new rigour and focus on what really matters, the prospects for the most well-founded of these businesses may be much more exciting and profitable than they have ever been. That would be good news for all of us.
I’m reminded of that old business adage: “Sales are for vanity; profit is for sanity.”