It's dramatically easier to run a business when you merely need to be sustainably profitable rather than wildly profitable.
So much of the business world is contaminated by MBA-think that must squeeze every single penny out of a going concern.
So much of the business world is contaminated by MBA-think that must squeeze every single penny out of a going concern.
Businesses aren’t insulated from exterior forces like competitors. If you aren’t squeezing for pennies and your competitors are, they’re going to be offering your same solution at a better price.
But they survive by focusing on more they just profit. They survive by understanding long-term value over short-term profit. They embed into a community. They treat employees well, they treat customers well, they care about environment (inside and outside), fairness and do on.
The stereotypical "MBA" gets a hard time because they only care about short-term profit. This quarter results. They sell the soul of the business and all they get is money. They refusecs refund, but lose a customer forever.
Of course this is a caricature, and most MBAs - certainly the good ones - know where to press, but at the same time understand that the business needs balance. That being around next year is more important than this months targets.
And I get the MBA effect especially as we see that segment in the business news all the time.
But most businesses aren't big. Most don't have so MBA. Most don't make wild profits. Most are happy if they make it through the month, build up sufficient reserves, grow production over time and so on.
Profit is not just "extra money for owners", its also the part that provides income security in tough times, that buys new machines, that covers over the slow seasons, that secures cheaper supply lines and a million other things.
It creates resilience against the ever changing nature of the world. A business that runs at break-even are one tiny event away from closing their doors.
Squeezing every penny is not always about wild profits. Sometimes it's just keeping the lights on.
Careful there. While it may be true that there are more than 10 tech companies (MAANG x2) that doesn't actually reveal a lot about the skew of the landscape, as 'most' in this case means by absolute number and not weight.
Beer is no different. There's better than a 9/10 chance that microbrew you're holding is owned by one of two companies - Miller Coors or AB Inbev (and of the two it's far more likely to be Inbev). At least, this was the case a few years ago when I was still paying attention.
If you were to count by market share or even heads employed, I think you might find that "most business" is goliaths, not davids, and in this story, david loses.
Perhaps if we had kept antitrust solid it wouldn't be so hard to keep the lights on.
Not yet mention that "big" has a different definition everywhere - I'm going to suggest an arbitrary limit of > 500 employees.
Again, it depends where upu live but if you look gard you'll see most businesses are small. Corner stores. Factories. Plumbers, electricians, car repair, and so on. Franchises.
There are not just "more than 10" tech companies, there are tens of thousands of them. I have 3000 tech customers and they are 99% small (by this definition) and I operate in a market so niche it would make you eyes water.
The vast majority of businesses are tiny. They are not on any stock exchange. They have < 10 employees. You will never read about any of them anywhere.
Beer brewing is very consolidated, but even there micro-breweries are gaining traction. Chances are though that if you bought your beer in a national chain its not a micro brewery.
This seems like an old-fashioned view on the nature of business. It may have been true 50 or 60 years ago (at least) but I think it's the exception rather than the rule today. Cutting loose your employees is what provides income security in tough times (for the employees not cut loose). Loans buy new machines. If you have a couple slow seasons you'll simply be bought by some private equity firm, loaded up with debt, then driven into the dirt along with any pension obligations etc., the firm may have had.
Your view is likely biased towards the US though - most countries don't have a PE industry. Also most businesses aren't attractive to PE in the first place.
You need to look past the headlines, past the news. As you drive consider each building you pass. That mom-and-pop store. That corner franchise. That Indian take-aways.
Most businesses aren't Apple or Google. Those are the exceptions, and despite their vast numbers they are a drop in the bucket of the n billion people employed world-wide.
Yes it's an old fashioned view on the nature of business. But it's also the reality for millions of small businesses today.
Late stage capitalism is eating the heart of the US yes, but fortunately it hasn't spread to most places yet. And even in the US good businesses do well, if you care to see them.
You're right that, by the numbers, there are a lot more small companies than large companies. But it's the large companies that steer our political and economic institutions. And, in many or most cases those smaller companies will have to compete with the larger ones, and certainly rely on at least some of them for their operations.
At one the sales in our division fell and we were losing money so there were layoffs, more people left, and eventually they shut the division down. That wasn't fun but people understood.
At another we had increasing sales, were profitable, but they laid off people, and then sold our division. The reason was that our return on investment was 11% while other divisions were 25% or even 40%. We made something much more specialized but lower volume and harder to sell. It was frustrating knowing that the company is making money but it's not enough money for them to care about.
IMO it was the right decision. Does it make sense for a company to continue keeping folks who fail to meet an objective of getting from 11 to 20-25%? Is it fair if other departments are able to pull off similar feats and one department isn't?
Seems like layoffs were probably restructuring to keep best of the talent and a last ditch effort to try to get the talent to make it possible. When that failed the company realized the best way to achieve that was to exit the division and double down on the ones that could.
We sold semiconductor IP blocks. There might be a product that sold for $500K and they might sell 50 licenses a quarter for $25M. For our product our direct competitors sold it for around $4M
But at the end of the quarter the division that we were lumped in with would be short of their target by $2M. Then the VP of sales would go through the list of customers we were currently negotiating with and instead of selling for $4M would offer a big discount at half price in order to hit the quarterly revenue target.
This went on for 3 years and then they say you need to increase your ROI numbers. Our plan was to not give huge discounts and sell at the same price as our competitors but we got sabotaged by that VP of sales every quarter.
After we were at other companies our former customers told us that it was widespread industry knowledge that you could just wait until the last day of the quarter to get huge discounts from us.
Yes, because your most heavily optimized cash cows are also your least resilient when the market shifts.
A long-term business needs to have a mix of optimized growing cash flow products, legacy cash flow products that are declining, and new cash flow products that don't quite meet the bar yet. Otherwise, as soon as your cash cow gets hit, your business is dead.
To buy the brewery, they will more than likely be taking on a ton of debt at higher than normal interest rates...this would put them under a lot of pressure from the start...
When did "market clearing price" quit being a thing? When did we forget that market forces also work downward?
This is like the "labor shortage"--there is no "labor shortage". There are simply companies unwilling to pay market rates.
The real problem here, however, is political, not economic. If a Sapporo exec signs off on ... say, a $10 million deal ... and suddenly Anchor Steam suddenly starts pulling good profits it will make some Sapporo executives look really bad. And that is really bad for your career.
By contrast, shuttering it completely, selling off the barrels, makes the balance of the debt just go away. The landlord gets to simply write off owed rent.
Obviously prior owners will often take on debt to keep the business afloat. That might be financed debt, or credit lines. Or just non payments (rent etc). Resurrecting the business is hard because those suppliers have to be made whole. That's usually the killer in saving a failing business.
Yea, taking a big loss will help with their taxes.
But they could just give it away...
Certainly taking it private makes some aspects easier, but makes financing harder too.
I own a bit of a brewery and have learned a bit about the business in the past 7 years.
No, breweries are not insanely profitable. You might think that they are if you simply look at grain to glass and forget about everything in between.
Those in between parts are real estate/rent, equipment, chemicals, packaging costs (equipment, labor, consumables), employees, taproom expenses, marketing, and finally, the worst, distribution expenses.
It's been a fun ride and I'm glad I'm involved, but insanely profitable just isn't the case.
I don't drink alcohol so to be fair my knowledge is mostly coming from friends getting trashed on cheap Pabst Blue ribbon lol.