Netflix has 20 billion in debt and liabilites. According to the company they plan to be “cash flow negative for many years.”
I’d love to be able to be cash flow negative for the indefinite future while attracting billions of dollars in loans at favorable rates on lenient timelines.
Youtube for the better part of a decade was able to run on a loss and according to their CEO as of 2016 had “no timetable to profitability”.
I wish I didn’t have a timetable to profitability(BTW, I love YouTube).
There is a long list of large and unprofitable companies. Companies that either we’re running at a loss for a long period of time or companies that still are. Companies like:
- Amazon (due to continuously reinvesting profits as opposed to a bad business model)
Huge companies can hemorrhage money, year over year because they:
- Have access to large amounts of capital from VC’s
- Have access to large amounts of capital from Banks at favorable rates and timelines
- Have access to large amounts of capital from investors as publicly traded companies
- Can pay minimal tax through complicated corporate structures and write-offs
- Can potentially get bailed out by their friends in government because they’re “too big to fail”
- Or all of the above
A company with potential to be big can take VC financing for years with no timetable of profitability, because VCs need to hit home runs. And they will happily dump money into a company they think will become public one day.
A big company can take massive loans from bankers because bankers need to loan massive amounts of money to make profits. And they will be much more flexible with large companies on payback because they can’t afford to take a massive default. They don’t care about your $40,000 loan. When you have $4 billion in loans they will do whatever they can to help you pay that money back.
A big company can afford to run at a loss as a public company because they have so much investor money to play with. And John Q Public can’t do anything about it because he owns $200 worth of stock. Instead a large company will run on the timetable of it’s activist shareholders who often have a much longer timeline to profitability.
A big company can pay legally minimal tax because they have the money to make the system work for them by exploiting every available loophole and creating complex tax shelters.
You as a small to mid-sized entrepreneur or aspiring entrepreneur do not have those options. Sure you can structure your finances to legally minimize tax. And you might be able to get loans. But your situation is not even in the same ballpark as a large company.
You need to be profitable, and you need to be very profitable to survive and thrive. A product based company on razor thin margins is one month away from failure at all times. You need high margins and a high ROI to beat the 90% failure rate for most businesses.
A big company can even get bailed out by the government (aka the taxpayer) if they’re deemed to be big enough.
Since 2012 I’ve been more profitable, had higher margins and a significantly higher ROI than all the companies listed in this article combined.
I’m profitable, have high margins and a high ROI because I have to be – if not, it’s lights out for my business, because no government is going to bail me out. And I don’t have millions in executive options to cash out on and parachute into prosperity.
I’ve been lucky to make a product based business work. But for most guys, I recommend a service based business (and of this year have incorporated clients into my model so that I’m selling both products and services).
A service based business, with a skill you’ve mastered, and knowing how to sell, is your best bet at success because:
- You have no inventory costs
- You can run as a sole proprietor in the beginning with no payroll costs
- Your upfront costs are negligible (phone, internet, and maybe a designation)
- Your monthly expenses are negligible
- You have a proven market instead of gambling on reinventing the wheel
- Your margins and ROI are stratospheric
By the time a company gets big, the margins and ROI you’d get on a small to mid-sized service business are impossible. The high margins and ROI of the early days has been reinvested into the company, and combined with VC money, loans and public money.
At that point, the company has so much cash, it’s impossible to get the 100% or 1000% returns on billions of dollars. The S&P 500, which is the 500 biggest and best companies have averaged an 8% return over the last 100 years.
The best fund managers like Warren Buffett and George Soros have averaged a 20% return for their investors. And Warren didn’t get rich off that 20%. He got rich off by getting investment from wealthy individuals through offering 12% higher returns than the S&P 500. To a billionaire investor, an extra 12% is enormous.
But none of that is your reality, the stock market won’t make you rich. You need to get rich off your business, end of discussion. Not stocks, not crypto, not forex trading – through your high margin, high ROI business.
And you need to be profitable and reinvest in that business, because a good business is a money machine.
And you won’t get access to all the enticing options that big companies have because life is not fair, not by a long shot.
Brad Pitt can get millions of dollars worth of free clothes now that he’s successful, but he doesn’t care or need those clothes, he needed them when he was a broke actor sleeping on couches.
Because that’s how life works, it doesn’t get easy until you succeed. You don’t get the freebies until you don’t need them. You don’t get comfortable until you get ahead, and by then you’re already tough as nails and hard as steel. And that’s just how it goes.
But that’s ok, because that’s the game of life.
The good news is, now is the best time to be alive in human history.
Now is the best time to build a business.
The internet is the greatest equalizer.
You have more opportunities to succeed than ever before.
All you have to do is build a profitable, high margin, high ROI business.
Don’t worry about occupying wall street.
Worry about getting yourself to the 1% where you can live comfortable and free.
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