When is a dollar not a dollar?

I don't know if it's economically correct, but as a self-employed person—been at it for a decade now—who still struggles profoundly with cash flow issues (combination of recurring revenue from software and one-off revenue from consulting to get to break-even), I tend to look at dollars as having different values based on whether they occur in a predictable stream.

To me, $1 of recurring revenue, paid on any schedule, is worth at least 4x-5x any sort of one-off project revenue. And conversely, because of cash flow, $100k in self-employed dollars is worth a lot less than $100k in W-2 dollars, despite the higher effective tax rate on the W-2 income. Once you take a discount for cash flow volatility, $100k in unsteady self-employed dollars can afford you a lot less lifestyle, savings, etc., since you can afford fewer and smaller recurring costs if you don't want to be eaten alive in late fees, interest, hits to credit, etc. because you get paid tomorrow but the bill is due today—the bane of my particular existence, living the dream. I suppose that goes with "a dollar today is worth more than a dollar tomorrow".

W-2 income is also more valuable, pound for pound, because of specialisation. In our industry, one can earn a steady six-figure paycheck for doing more or less one job in W-2 land, or one can earn an unsteady six-figure paycheck for doing all the jobs in SE land.

A lot of the points in this article are good, but I don't agree with the Cost vs Revenue section.

There are often a _lot_ of benefits that come with higher sales beyond simply revenue. For instance, you may reach a higher order threshold with your supplier, unlocking better pricing across the board. Or you may show better growth, attracting investors or other momentum.

There are definitely customers where cost is more important than revenue, which in my experience are companies "run by the accountants". In my years of consulting and being inside growing and dying businesses, I see there's 2 main drivers of a company: sales, or the accountants. One focuses on growing at any expense, the other focuses on cutting costs and minimizing risk. They aren't generally compatible, but they both have their place. Some company heads focus on one or the other, and some can balance it.

There's no way that you can claim cost savings are more valuable than increased revenue, it's just too complex.

> In my college economics class, I was taught that money is fungible because there's no difference between one dollar and another dollar. Over the last five years as a VC, I've learned that that's not exactly true and that some dollars are much more valuable than others to a business.

I understand the author is trying to write creatively but such parallels only create confusion. Of course, money is fungible, no, some dollars are not much more valuable than others. If your dollars come attached to a condition or cost you money to get that is a different story.

> a customer's VP of Engineering has ten direct reports and feels very overworked. If a product saves each engineer 1 hour every month but creates 2 hours of work for the VP, that will be a hard sell if the VP is the buyer.

This is true not only because the vp of engineering is the one to decide. This is about saturation, he/she can't work another 2 hours, because there is no time.

From the time I studied tournament poker I learned your last dollar is way more valuable than your millionth. There's a similar saturation there. Bill Gates doesn't notice a $1000 added, but some factory worker in India probably will.

All points aligned with conventional wisdom, IMHO, bar one: that it's easier to sell cost savings than revenue gains. Revenue gains can be quantified accurately, because revenue is recorded in all businesses. Cost savings, especially for staff time, can be much harder to measure.

> Example: a customer's VP of Engineering has ten direct reports and feels very overworked. If a product saves each engineer 1 hour every month but creates 2 hours of work for the VP, that will be a hard sell if the VP is the buyer. But if the product saves each engineer 30 minutes while also saving the VP three hours, that'll be a much easier sell. In each case, the customer's company saves 8 hours of engineering time per month (1 x 10 - 2 = 0.5 x 10 + 3 = 8), but the second product will be much easier to sell than the first.

Or, indeed, if the product creates an extra hour of work for each engineer but saves the VP 30 minutes, it'll be an easy sell. The VP ought to care about his people's time, but that not nearly as common as it ought to be.

Great post. Its key ideas are:

* A dollar has different value to a customer depending on where it falls on the customer's financial statements.

* Some dollars require a more effort to earn than other dollars.

* A dollar today is worth more than a dollar next year.

The post is filled with examples of these three principles.

This is a great exploration into the relationship between software and cash flow. Keep writing!

One topic that continues to fascinate me is the question of how to create higher-value software. How can I, as an engineer, ensure that the software I create justifies its production costs? I feel this is a larger question than just how much the software affects the cash flow of its parent company (although that may go into the valuation), and it's a topic that's crucial to our industry but as of yet, mostly unexplored.

In other words, accounting is often far more important than economics in determining business success.

A dollar of long-term capital gains is worth about 20% more than a dollar of dividend, and about 40% more than a dollar of wages.

You're forgetting about taxes, perhaps the single biggest reason why some dollars are worth more than others.

#1 is dangerous since growing sales is much harder than cutting costs.

When it's a Tether?

..joking about the title aside, this article makes good points.

tl;dr: When it's a jar.