It seems in business, or any topic that involves money, most people’s mentality is that the bigger the number the better. After all doesn’t making $350K a year sound much better than $50K? Or better yet your company making $1B a quarter is much better than making $5M a quarter, right?
Don’t get me wrong, all things being equal I’d take the $350K over the $50K any day. But what ever happened to net value of something? You know, the number that you put in your pocket – after all your expenses and taxes are paid? Isn’t the cost of doing business an important factory anymore in determining the value of company?
So why are we so mesmerized by big numbers?
Is it because the bigger the number the safer we feel because that means the more we can have and the less we fear of running out? Or is it just ego and greed?
How many times have you said to yourself, “If I just had an extra….dollars…all my problems would go away or I could grow my business and expand and….” Just get Dorothy to click her heals and get the Fed to fire up the printing press and voila problem solved right?
No problem solely ever gets fixed with money. Maybe temporarily it can alleviate some pain and discomfort. And having money doesn’t necessarily mean that your poised for bigger and better. Ultimately there has to be some fundamental changes that go with it. Processes need to be adjusted and models need to be changed. Look no further than the Fed to see how true this really is. Their solution for everything is to print more money. And look where has that gotten them?
According to Focus.com Venture Capital firms in Q1 of this year injected close to 7.5 billion into Silicon Valley Tech companies. Some of which are now poised to have some big revenue numbers because they now have the money to grow and expand…and follow the bigger is better philosophy of business. But who cares that most of them are not profitable. As long as the gross revenue looks strong so the valuation looks good – that’s all that matters, right?
Take Groupon’s IPO filing for example. According to a recent article in Tech Crunch Groupon lost $456 million last year, and another $147 million in Q1 of this year. CEO Andrew Mason even went so far as to warm shareholders stating that “We aggressively invest in growth.” They spend the majority of their money trying to get more subscribers and loose money hand over fist doing it.Yet the word on the street is how unbelievable their growth has been. They spent over $1.16 billion dollars to make $713 million. What more is there to say. No advanced calculus formulas. It’s simple math. Why is it so hard to see that this business model is not working?
Making it and keeping it are two different things and are worlds apart both in business world and personal economies of many people.
If there is to be a return to economic and financial stability there has to be a fundamental shift in the way we run business. We need to revisit the profitability model, get a better grip on sustainability and understand that growth comes in many different flavors not just the ‘get bigger at all costs’ kind.
I believe entrepreneurs and small business will be the catalysts for changing not only the way we do business but also the way live our lives over the next couple of decades. Those smart enough to understand this shift for not only making money but also doing so profitably will be the ones who not only survive but thrive in the years to come.
Hopefully sooner than later traditional big business, governments, federal reserve, lending institutions and those on Wall (Fraud) street, will realize this as well and jump on board. Until then the question remains, when will they ever get it right?
Graph Courtesy of Techcrunch.com .