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> Unfortunately all the profits became their salary. Genuinely, why is this unfortunate? It sounds like the workers in the business are getting to keep the val
by Humboldtsnee 3y ago
> Unfortunately all the profits became their salary.
Genuinely, why is this unfortunate? It sounds like the workers in the business are getting to keep the value they create, and were more likely to be committed to the business as a result.
- mgh95 3y agoThe individuals founding the bakery took a risk in firm formation (incorporation, initial lease collateral, equipment loans which may have been cosigned by the owners as individuals, etc.). The rewards received were purely salary based -- exactly what a worker receives. The net result is that while the owners of the business received a return (a good salary), this return is not a capital return based upon the risk absorbed as founding which may have been greater.
- innagadadavida 3y agoDo you think the margins were low because they just used higher quality ingredients and did not doing any food management? If so the next owner can optimize these inefficiencies and extract value from the brand value.
- Humboldtsnee 3y agoIs using a higher quality ingredient an inefficiency? It seems like it produces a different product.
- transcriptase 3y agoI mean… gestures broadly at every company large enough to hire MBAs
- mediaman 3y agoUsually it’s more structural than that. Too much competition, too few customers, too little scale to afford the type of talent that can optimize inefficiencies. There is a reason these small localized businesses tend not to produce outsized profits.
- idopmstuff 3y agoIt means the business can't practically be sold - if you buy it and have to spend all the profits on someone to manage it, you make nothing for what you've spent. You could buy it and manage it yourself, but then you're effectively paying a significant amount of money for a very difficult job - might as well just go get a job for someone else. That ultimately means that the business itself isn't worth anything, so when the owners decide they don't want to manage it anymore, it'll likely just have to fold.
- Humboldtsnee 3y agoWhy is that unfortunate? Genuinely. It seems like the people doing the labor keeping the profits is a good outcome?
- bjablonski 3y agoWhat OP probably means that business was able to pay a living wage for owners and nothing more. So there was no additional cash for hiring manager, not even thinking about something for "new owner".
- ahahahahah 3y agoI feel like that's simple reading comprehension. The "unfortunately" isn't like in the context of whether that fact is good or bad in general, but specifically in the context of whether or not it was a good business to buy.
- bitcurious 3y agoIf mom & pop doing the labor wanted to retire by selling the business, they can't. What might have been an asset isn't. So they either keep working even though they are of retirement age, or they close up shop with a smaller nest-egg.
- x0x0 3y agoThe fundamental problem is they haven't built an asset, and now they're trying to sell a job and likely deluded about the value. If all you have is a business that supports a good wage for 1-2 overworked owners, that's worth something not materially different from $0.
- SaintGhurka 3y agoSerious question - If all the profits go to the workers' salaries and nothing is left to pass through to the owner, who would have an incentive to guarantee the workers' salaries if revenue falls short? Who would be willing to risk capital to get the company through unexpected hard times? Should the workers chip in to keep it going?
- Humboldtsnee 3y agoI mean, the owner is a worker. These are not mutually exclusive roles. If times are tough, then the owners probably take a smaller salary for their labor, or the workers can decide how to cut costs together through salaries, benefits, reducing costs of manufacturing, or whatever.
- idopmstuff 3y agoThe owner is a worker AND an investor. If they're actively working in the business, they deserve to be paid for that labor. Regardless of whether they're actively working in the business, they deserve to be rewarded for taking the extremely risky step of creating a small business, which in turn created all the jobs for those workers.
- Guvante 3y agoYou imply a hypothetical investor would do that. Typically they are only interested in injecting money for growth. If there is insufficient profit to satisfy their cost of capital expectations they sell off or fire until it does. Our growth model doesn't support resilient businesses only gambling at phenomenal amounts.