"If there is a single rule in business, it’s that revenue has to be greater than expenses. This fiscally conservative approach worked well for New Hampshire, which, even during one of the worst financial crises in history, was able to maintain a balanced budget and create jobs."
I didn't realize being profitable (revenue - expenses > 0) was now "fiscally conservative". :D
Well it contrasts with the 'network effect' meme which is revenue scales with the square of traction, and expenses scale linearly with infrastructure. In that theory of business you start out cash flow negative and grow through the cash flow positive point, and then become exponentially more profitable moving forward.
That's hardly a meme. Most businesses require initial capital expenditure on "infrastructure" - even your local window cleaner requires a ladder, bucket, soap, cloth and squeegee, and maybe a bike and a set of overalls.
You are correct, and many businesses fund that initial bootstrap cost with a conventional unsecured loan, in the US we call them 'Small Business Loans' and they are generally backed by the Small Business Administration (SBA). And for the businesses that are successful, after buying their equipment, initial inventory, what have you. Are then in a state of debt with respect to a number of parties. If their revenue from operations the first full month they are operating exceed the payment on against their debts and covers their other costs with a even a $1 extra they are 'operationally cash flow positive' from their first month.
Contrast that with a business which has revenue and customers from the day they start operating but they don't cover their expenses and so are either going deeper into debt on month two, or in the case of a venture backed company burning through their equity capital. Often times these businesses will have a number of customers or number of transactions which would cover their operational expense but they haven't gotten there yet. But the meme part is that the more people use their service, the more people are exposed to their service and potentially use it, (that being the network effect), and the business is set up such that their initial infrastructure investment creates enough infrastructure to be operationally profitable if only they had enough users. So they try to cross that line before going broke.
A number of startups are based on becoming profitable later, rather than out of the gate.
The author is politicizing quite a bit there, implying a link between balancing of state budgets and job creation (tell that to California and Texas, where the most jobs have been produced but both in states with budget woes).
Great points all across for bootstrapping. Unfortunately it is uncommon as many startup entrepreneurs look to seek funding before reaching profitability.
6 comments
[ 4.9 ms ] story [ 24.3 ms ] thread"If there is a single rule in business, it’s that revenue has to be greater than expenses. This fiscally conservative approach worked well for New Hampshire, which, even during one of the worst financial crises in history, was able to maintain a balanced budget and create jobs."
I didn't realize being profitable (revenue - expenses > 0) was now "fiscally conservative". :D
Contrast that with a business which has revenue and customers from the day they start operating but they don't cover their expenses and so are either going deeper into debt on month two, or in the case of a venture backed company burning through their equity capital. Often times these businesses will have a number of customers or number of transactions which would cover their operational expense but they haven't gotten there yet. But the meme part is that the more people use their service, the more people are exposed to their service and potentially use it, (that being the network effect), and the business is set up such that their initial infrastructure investment creates enough infrastructure to be operationally profitable if only they had enough users. So they try to cross that line before going broke.
A number of startups are based on becoming profitable later, rather than out of the gate.