Staying over at my in-laws for Christmas I found this old 1994 (I believe) book on a shelf and took a look.
Most of the stuff inside was extremely technical and only applied to big companies, other stuff aged like milk (hello 2008) but I found some of it that wasn't outdated and was actually very insightful, so I wanted to share it.
The book defines micro-businesses those that have less than $1 million in sales (worth $2.1M in today's money).
I assume that most people here looking for advice fall within this category, myself included, so here's the takeaway:
- a microbusiness is too small to impact the market it's in and its ability to thrive is often just related to market conditions rather than its managers' skill;
- minority shares in microbusinesses are worthless and the only people who would be interested in buying them would be family members or the majority shareholder, as its unlikely these businesses will ever pay dividends;
- microbusinesses often have intangible assets (such as customer loyalty or geographical benefits) that outweigh their tangible assets by a lot;
- assets that have inherent value (such as real estate) but don't contribute directly to the production process are worthless except in the event of a liquidation;
- in general but especially for microbusinesses who don't have patents or similar assets to fall back on, cash flow is king;
The first point especially hit me like a truck.
We just had our first year and we did pretty well, working hard at our store, and naturally we started thinking we were born for this, how easy it was in hindsight and why we haven't done it sooner.
In actuality, it's more reasonable to say that we got lucky and found a good location that was unserviced. Sure we did some research but not to the extent one might think when talking in serious terms about market research.
The second point made it clear that one can't easily cash out until they've done so much work as to already be a millionaire, and I can see why. Anything you put your money in but can't control is a gamble only a fool would take (more power to you if you actually find a fool to sell it to).
The point about assets that don't contribute to production was also insteresting, as I was under the wrong impression that owning real estate would make your business more solid and credit-worthy. And while that might be true, the only thing that matters is whether or not your assets help you pay your obligations to stakeholders. If they don't, they are useless.
Sure you could rent real estate but if that's not what your business does you'll just entangle a lot of cash for money you could have made a lot more easily through your normal day to day operations.
At the end of the day, there's no solution for any of this except growth. The bigger of a fish you are, the more smaller fish you can eat.
What do you guys think? Do you agree with these points? Does this part of the book hold up?
Share your thoughts! Picture attached.
Most of the stuff inside was extremely technical and only applied to big companies, other stuff aged like milk (hello 2008) but I found some of it that wasn't outdated and was actually very insightful, so I wanted to share it.
The book defines micro-businesses those that have less than $1 million in sales (worth $2.1M in today's money).
I assume that most people here looking for advice fall within this category, myself included, so here's the takeaway:
- a microbusiness is too small to impact the market it's in and its ability to thrive is often just related to market conditions rather than its managers' skill;
- minority shares in microbusinesses are worthless and the only people who would be interested in buying them would be family members or the majority shareholder, as its unlikely these businesses will ever pay dividends;
- microbusinesses often have intangible assets (such as customer loyalty or geographical benefits) that outweigh their tangible assets by a lot;
- assets that have inherent value (such as real estate) but don't contribute directly to the production process are worthless except in the event of a liquidation;
- in general but especially for microbusinesses who don't have patents or similar assets to fall back on, cash flow is king;
The first point especially hit me like a truck.
We just had our first year and we did pretty well, working hard at our store, and naturally we started thinking we were born for this, how easy it was in hindsight and why we haven't done it sooner.
In actuality, it's more reasonable to say that we got lucky and found a good location that was unserviced. Sure we did some research but not to the extent one might think when talking in serious terms about market research.
The second point made it clear that one can't easily cash out until they've done so much work as to already be a millionaire, and I can see why. Anything you put your money in but can't control is a gamble only a fool would take (more power to you if you actually find a fool to sell it to).
The point about assets that don't contribute to production was also insteresting, as I was under the wrong impression that owning real estate would make your business more solid and credit-worthy. And while that might be true, the only thing that matters is whether or not your assets help you pay your obligations to stakeholders. If they don't, they are useless.
Sure you could rent real estate but if that's not what your business does you'll just entangle a lot of cash for money you could have made a lot more easily through your normal day to day operations.
At the end of the day, there's no solution for any of this except growth. The bigger of a fish you are, the more smaller fish you can eat.
What do you guys think? Do you agree with these points? Does this part of the book hold up?
Share your thoughts! Picture attached.
Dislike ads? Remove them and support the forum:
Subscribe to Fastlane Insiders.
