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Games People Play with Cash Flow (2020)

279 points by simonebrunozzi 2y ago

bruce511 2y ago
>> If you start from a wrong set of axioms, you would eventually end up with a flawed conclusion. While cash flow comes into it, I think the primary axiom which is different (between VC and bootstrap) is the definition of success. A bootstrap company is successful if it makes a profit, and remains in business. Some growth is nice, but there are plenty of one-man / familiy businesses to show that growth is not required. By contrast a successful VC business goes out of business early, or with (these days) a multi-billion $ exit. Like a company that exits with a $50 million OVER investment is a failure. If you want to win huge or nothing, then VC is the path to that. As a founder if you want to retire with money in the bank, then VC is "probably" not the right choice. Of course the optimum might be a mix- take VC money till you're 30, if it doesn't work out you still have time to build a nest-egg the old fashioned way.
- EGreg 2y ago
  I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace? Is there something in the SAFE note or whatever, that says the startup MUST fail fast, go big or go home? It can grow methodically, can't it? The closest explanation I've ever heard is that VCs do "signaling" in future rounds... but listen, if you have a few extra million dollars to grow your startup, and you still can't become profitable after that, then something's wrong with yoru business acumen, in my opinion. Anyone with a few million dollars is able to hire people and create a profitable product. What happens if a company pivots to being profitable "too early", what can the VCs do?
  - zhoujianfu 2y ago
    That is the ideal strategy, but easier said than done. Once you’ve got that cash it’s very very hard to act like you don’t have it… especially when everybody knows you do.
  - cshimmin 2y ago
    Huh, I’ve always assumed it has to do with some about of “de jure” control over the board that the VC assumes when the capital is raised. If they don’t like the founders growth strategy , can’t they just throw them out? Or is that not how it works?
    - fleischhauf 2y ago
      I guess it mus be something like this, I don't think someone would invest a rather large sum without having something like this in place
    - bruce511 2y ago
      Owning a company is different to owning say a bicycle. When you go buy a bike, you go into a store, get the bike, leave behind some cash, and you're done. Not a lawyer in sight. A company is a different animal. Lawyers, bankers, suppliers, partners, accounts and so on. Lots of paper gets signed by founders and investors regarding ownership, liabilities ("for all debts current and future") and so on. When VC capital comes into the mix things get a LOT more complicated. you can't just "give the company to the employees" because, frankly, that would be really bad for the employees (what liabilities are you taking on?) It'd also be really bad for current founders and investors. (There's likely paper floating around linking you to the company, and that doesn't go away just 'cause you lost interest etc.) At some point it's all just too complicated and too scary for the old owners and the new owners etc. Basically the risk (to all) just exceeds the potential value of what is there. Then there's agreements with banks, suppliers and so on, which can on occasion be "non-transferable" so it's not even just as simple as creating a new structure and moving all the IP into that. I'm speaking generally here - your mileage will be vary a lot depending on the exact circumstances.
  - rented_mule 2y ago
    During the dot com boom / crash, I worked at a profitable, VC funded startup. I don't know the legal / financial mechanism by which they did it, but our VCs shut us down six months after the crash. They wanted to put all of their attention into the other company in the portfolio that survived the crash, Yahoo, because their revenue was already far higher than ours could ever be. We were profitable (100s of K per year on revenue of a few million a year - small potatoes). Those numbers were growing steadily, even after the crash, but they weren't going to explode. We were given 30 minutes to collect our things and leave the building, but I suspect our founders knew a day or two earlier. They made a lunch reservation for all the employees that same day so we could say goodbye to each other, but we had to pay for it ourselves. It was a very strange experience.
    - langcss 2y ago
      That makes no sense to me. They could give the company to the employees instead right? Unless they wanted the code or something.
      - nine_k 2y ago
        If the company was seen as a competitors to Yahoo, it looked reasonable to shut it down. The VCs invested in several companies that had a promising direction, then shut down all but one that was growing fastest and grew biggest.
        rented_mule 2y ago
        We weren't in competition with Yahoo in the marketplace. But we were competing for the VCs' focus, and that's still competition.
        EGreg 2y ago
        But I dont see how they can force the founders to shut down the company They maybe gave them a big carrot u didnt know about
  - fragmede 2y ago
    Given that Wistia, MailChimp, Patagonia, and GitHub, among others did the seed/series A, profitability thing you suggest, there are other mechanics at play here. Specifically, as the article raises, profitability as in net revenue isn't everything. edit: swapped Basecamp for Wistia, because Basecamp did not take VC money.
    - EGreg 2y ago
      Basecamp took no VC money (Except for Bezos Expeditions many years into it)
      - fragmede 2y ago
        you're right! edited.
  - mewpmewp2 2y ago
    It depends on the product. The longer you have to push for the profit the hogher the reward sonce everything easy is already done. Things that are left to do have higher and hogher barrier of entry and depending on the business it will take a lot more time and up front capital to have a chance at profitability.
  - ftlio 2y ago
    VCs with board seats vs you are trying to run your company with all its intricacies while VCs are often managing you as yet-another-in-some-tranche.
  - jasode 2y ago
    >I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace? Is there something in the SAFE note or whatever, You're looking for something in legal paperwork with Terms & Covenants that for some reason is unstated in public discussions. The real underlying reason your idea of "just take the VCs money and do the opposite of what the investors want" isn't common is that it goes against the founders' personal integrity of doing business honestly. This means the founders not lying to VCs when they make presentations with the reasons for raising capital. I.e. the founders forecast TAM Total Addressable Market for revenue, forecast costs for servers and employees, explain their ambitions for growth, etc. The type of founders trying to get in front of VCs to convince them to fund their startup are supposed to be a self-selected set entrepreneurs who inherently want to grow fast and don't need VCs telling them to do so. If honest business dealing is the premise, then there's no need to "trick" the VCs into wiring them millions into the startup's bank account and then tell them "oops, I lied in my presentations and now that I have your money, I just want to grow slow at my own pace." Your question can also be modified to ask about a VC fund's intentions: "Why can't a VC fund raise money from LP (Limited Partners) and then just live off the guaranteed 2% management fee instead of taking risky investments and possibly losing money?" -- What stops VCs from doing that is the venture capitalist's personal integrity when asking the LP for money. With that said, there can be a difference in legal mechanisms between an angel/seed round with no board seat taken by a VC -vs- Series A with a VC on the board. At later stages, the board can outvote the founders and/or fire them.
    - TeMPOraL 2y ago
      It's interesting how, in this view, founders and VCs compartmentalize. What you call "honest business dealing" between founders and investors usually implies quite dishonest dealing with customers of the startup. The established pattern of growing fast and aiming for an exit already necessitates wringing in growth through dishonest means and, in the best case of a successful exit, eventually leaving the users/customers out to dry while the founders ride off into the sunset with full bank accounts.
lifeisstillgood 2y ago
The flaw is in the step 2. - raising capital reduces skin in the game which reduces “incentive”. Honestly heard this before in things like “don’t allow founders to cash out in early rounds they won’t be hungry”. This is akin to “if you take the shackles off your slaves they will run away” Taking on capital reduces risk for the founder which makes it more likely they will take better long term decisions. There is a balance obviously - if you give me a billion dollars for my pitchdeck I will certainly feel reduced risk but that may be offset by the risk the owners of the billion now take on. But yeah, the flaw is thinking hungry people make good long term decisions
- fragmede 2y ago
  being hungry means people are driven to make decisions, just not necessarily good ones. they're after the drive, and hopefully acumen, but drive is more important than acumen, they hope.
  - lifeisstillgood 2y ago
    Is that the “VCs have never been hungry, met human beings or read any history” theory? :-)
ftlio 2y ago
Great read, especially from the perspective of just trying to understand why people overfit certain thinking to certain problems. My startups perspective: I think it’s hard for people to understand the subtlety from all the memes and hearsay. We hear that you need to talk to your users to understand what to build, but I’ve seen this fall flat on its face and lead to extreme confusion, several times now, when you’re not talking to your users as a matter of observing your product/business model against reality to then update the axiomatic thinking that (hopefully) lead you to its current iteration. I’ve seen this play out as a cringy ask to “let us know if you think of any other features you might like” met with puckered faces from customers that essentially said “or how about not because my job isn’t to build your product?” This is Henry Ford / Steve Jobs talking about faster horses. You’re not asking your customers what to build. You’re asking them to help you understand the reality against which your logic plays. Then there’s the opposite, where a business marches forward because some axiomatic thinking has determined that the macro environment should support it, not updating itself against a pending catastrophe in cash flows that leads to cuts that further undermine its ability to exist even within its own framework. Design and test from first principles, but operate for the pain of as many rounds as possible. Maybe one day you can truly optimize and it won’t hurt as much.
- IneffablePigeon 2y ago
  Yes. What you ask is just as important as whether you’re talking to your customers. The Mom Test is the best book on this.
  - reducesuffering 2y ago
    The Mom Test also talks about getting the problems from the customer but owning the solution how it solves the problems they have.
- devjab 2y ago
  I think you should be asking about their work, and try to understand their business processes rather than what they want from your software. Then you can spot their pain points and develop features for those. I know this is easier when you’re an internal developer, but the best way we have to spot important features (and the removal of some) is to simply spend a week in the shoes of an employee using the software. Everything which annoys you, annoys your users.
graemep 2y ago
There are a few very strange, almost unbelievable, things said about people's understanding of the issues. I can understand that startups and small business may not understand that value comes from cash flow not profits. The value of an asset is the value of the discounted cash flow. This is very basic to the theory finance, so how come banks and wall street did not know it? There has to be more to this. just being an institutional investor looking at selling at a profit as soon as possible. The stuff about payment terms, speed and pre-payments is standard good cash flow management. Did these people have no professional advisors explain this? This is literally business textbook stuff. I have the textbooks (even the MBA ones, which are a bit more basic cover it all in the first few chapters). The British supermarket chain Kwik Save financed its growth (in the 1970s) by getting long payment terms and selling for cash, and they were imitating the strategy of similar businesses in the US. This is not new. I read the Bezos quote as primarily talking about long term vs short term, not cash flow vs profit measures. I am sure he understands both issues given his background in banking and investment, but here he is really talking about looking at the long term. It makes sense given he owned a large chunk of the business he intended to hold, rather than being focused on next year's find manager league tables.
- refurb 2y ago
  I can understand that startups and small business may not understand that value comes from cash flow not profits. This is not correct. You can have positive cash flow over a period but still be losing money. You can also have minimal cash flow but be wildly positive. Cash flow is one component of value, but not the only one.
  - deleted 2y ago
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  - graemep 2y ago
    Financial theory says otherwise. The value of an asset is the value of its discounted cash flows.
    - 2y ago
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roenxi 2y ago
In this case the argument is flawed because it is too loose in defining a bunch of words and premises. Eg, you can't argue about "bad decisions" because in this case it is a meaningless term. With the frame in the argument it likely isn't correct to say that "once you have less skin in the game, it is easier to make bad decisions". You are still empowered to make the best decisions you can, having less skin in the game doesn't change that. The skin-in-game principle is a pithy way of talking about principle-agent risks. That is to say, it is a problem for the people fronting the money, not the people on the receiving end. The people on the receiving end are strictly better off (ignoring that they're going to have to trade away control to get the money, obviously - they have strictly more options in the short term). And the people giving the money will still invest despite that, because they need to take risks to earn money - their strategy is to take risks to earn a premium, so they're looking for sensible risks to take.
totetsu 2y ago
This was posted 4 years ago also. https://news.ycombinator.com/item?id=25357669 https://news.ycombinator.com/item?id=25357669
brador 2y ago
The flaw is unwritten step 0: The goal is to make money not run a startup. A startup is a means to an end. Borrowed money gets you there faster with less risk to self.
rwmj 2y ago
This is true from my very limited start up experience. Our start up was also self-funded. There were times when there was work left on the table, because we couldn't afford to hire an extra person to do the work, because we didn't have the cashflow to pay them for the first few months while they came up to speed.
wodenokoto 2y ago
I had a an accounting class in college and cash flow never clicked. I get the examples, especially the restaurant one. But I don’t blame anyone for not being able to play cash flow games.
- nick3443 2y ago
  Simply put, assuming the books will balance eventually, would you rather hold the money or hold the IOU, and for how long? If you hold the money as it changes hand, you can make money off of that (or use it for opening the next store). For a corporation where revenues are consistent, 90 days of payables that you haven't paid anybody yet could be equivalent to tens or hundreds of millions of interest-free loans. Home depot notoriously has payment terms that can extend beyond one year. Edit: To add on to that, understanding the accounting of E,I,T,D, & A (earnings, interest, taxes, depreciation, amortization) as in EBITDA is an important factor to grokking beyond the surface of the article. Basically cash accounting versus amortization accounting.
  - SoftTalker 2y ago
    > 90 days of payables that you haven't paid anybody yet could be equivalent to tens or hundreds of millions of interest-free loans ... for the first 90 days, it seems to me. Then you're back to paying them, they're only time shifted. So it strikes me as a way to take a 90 day loan, once. What am I missing?
    - catherd 2y ago
      It's a forever loan for whatever your average payables total to over 90 days (so $10k every month would be a $30k loan). The loan lasts forever or until you close out that line of credit/wind up the company.
      - nick3443 2y ago
        The loan lasts as long as your payables continue to average above $10k/month (or 30k in every rolling 3mo period). Businesses get into trouble when they have a short term disruption and suddenly their cash flow is impacted, then they have no more receivables and have to quickly come up with money to close out the payables. If they are already over leveraged or don't have creditworthiness then they can become insolvent.
golol 2y ago
So as I understand you play these games with cash flow but ultimately the objective eventually is to still turn that into profit. After you've grown your company for several decades at aome point you stop growing and you start milking it. Similarly you want to accumulate float as a restaurant to prepay your suppliers to get better prices and hence more profit.
- spydum 2y ago
  Actually,I don't think you ever need to be profitable, as long as you are cash flow positive, there isn't really a reason to stop the merry-go-round. It sounds weird, but if every month you collect more cash, and you pile it into future investments/raw materials, it just turns into more cash flow later.
  - deleted 2y ago
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  - yuliyp 2y ago
    Huh? The ways to be cash flow positive but unprofitable are borrowing/investors putting money in, depreciation adjustments, or growing accounts payable. All of which eventually stop.
- jdmoreira 2y ago
  Not necessarily. You can just sell it and get paid. Either selling it in the public markets or private to a PE firm or someone else
  - golol 2y ago
    But at some point after the company has been sold again and again someone will want to actually make money off of that. At aome point the wheel gets turned around and this huge investment should be milked. Otherwise it doesn't make sense. Yea you sell the company and are out of the game but from the bigger view profit is still the eventual purpose of the company, it must be right?
bjornsing 2y ago
Every time I read one of these “thinking doesn’t work” blog posts I come away thinking “omg, these people just have no idea how hard it is to think”. IMHO the only situation you should be allowed to draw axioms and propositions like little balls with arrows between them is if you’re working in a formal theorem proving system. Anybody who has tried that knows that it’s just not true that the conclusion “startups shouldn’t raise money” logically follows from vague statements like “you’ll be more focused if you don’t have much money”.
- aeternum 2y ago
  Yes, throwing out first principles thinking just because you failed to think about all the first principles is a major error. You can often discover missing first principles by going the other direction. IE what companies were successful largely because they took VC money? If one competitor is taking VC money and another is not, which is more likely to win the market? This article seems to make the common error of destroying a fence before fully understanding why that fence was built.
notpushkin 2y ago
The Startups shouldn't raise money link is dead. Here's the archived version: https://web.archive.org/web/20230102110907/https://ensorial.com/2020/dont-raise-money/ https://web.archive.org/web/20230102110907/https://ensorial....
azeirah 2y ago
From my perspective it is neither wrong nor right. Articles are supposed to be written for a target audience, and I think the only issue is that the original article didn't mention the target audience is people who don't want to aim for the moon, but would be satisfied with just having a stable life where they're in control of their own decisions; in the vein of an indie hacker, a family business or other sustainable ways of doing small to medium business. This is hackernews, and we, as an audience live in a little bubble where the only right way to do business is by disrupting a market and becoming the next Google, Microsoft or Apple. Just like some of the contemporaries that originated from this subculture here like; Stripe, Reddit and openAI. There are many ways of doing business. The original article had a sound strategy for one particular way of business. This article by common cog has another sound strategy for doing business. Different target audiences, different games.
whall6 2y ago
One of the most genius “games” that I’ve seen in real life is Tesla’s offering of a roadster for a huge up front payment to pre-order (~$45,000). They literally created a new product out of thin air that they are untethered to in terms of time or specs (except that it has to be able to accelerate with the force of a jet engine?) to “unlock” millions of dollars of cash flow to fund current operations. (I imagine this to be the brainchild of Zach Kirkhorn.) I don’t know how many startups can employ “pre-order” tactics with their lack of brand power, but the basic essence is probably useful.
- dfhvneoieno 2y ago
  That's not "genius". Saying "give me money now for something later", making it vague and then not delivering isn't new or genius. It's something which is illegal, and this will be found to be illegal, once there's political will to investigate/prosecute.
  - hobs 2y ago
    Yep, that's called Fraud. The only reason its continuing is because the political will to prosecute the rich, especially their big donor friend Elon who they've been giving billions of government subsidies to - investigating him after helping him makes them look bad too, and oh boy did MANY state and federal dollars flow his way.
    - ethbr1 2y ago
      It's fraud if you never deliver. It's certainly not fraud if you are making progress towards delivering at some nebulous future date, and there was no contractual delivery date in the pre-sale. It's debatable whether it's fraud if the initial pre-sale expressedly included the possibility of non-delivery (i.e. Kickstarter).
      - dfhvneoieno 2y ago
        [flagged]
anymouse123456 2y ago
Friendly note to folks building unusual businesses. Much of the received wisdom of Silicon Valley startup culture is centered on developing new markets that do not currently exist. This activity has a very specific set of risks and rewards and for that profile, the advice is generally sound. If your business is attacking an existing market with entrenched players, more than half the advice is wrong. Cedric does a great job navigating these differences IMO.
arthurofbabylon 2y ago
This strikes me as an excessively complex argument. Personally, I would zoom way out to work with some more abstract axioms, namely… - Money now is more valuable than the same money later. - The above applies for all parties to varying degrees. - Some operations are money-constrained. - There are ways to move money forwards or backwards in time. Now most businesses are not in a position to financially engineer all that much, rendering the response to a given situation per the above axioms rather simple. However I agree with the piece in its insistence that you shouldn’t just look to the obvious categorical solutions — there may be some interesting opportunities to find in the cracks. This point was well outlined in the example of the restaurant owner securing a discount by pre-paying for ingredients. I would love to hear some non-monetary examples of axiomatic reasoning failures. Whenever I reflect back on a process I led a couple of years prior, I am startled by my limited awareness of dynamics/risks/opportunities — even though I was confident at the time and it went well. These reflections make it clear to me that we are always missing useful information, and I further laud the author for acknowledging this fact.
- ethbr1 2y ago
  The best axiomatic reasoning failures I've seen are in Thomas Aquinas' Summa contra Gentiles, e.g. 13th century natural law Christian apologism. Don't get me wrong -- they are works of philosophical art and among my favorite texts in all of philosophy. But they also very much abuse the space between axioms to deduce truth which seems absolute but is incomplete.
- scott_w 2y ago
  The axioms you state must be backed empirically by observing things that happen in the real world. The article explains the real world activities that back those axioms.
- RachelF 2y ago
  The important axiom you forgot: - The government needs to take your money via tax on profits. Result: Via fancy accounting, businesses can pretend not to have profits and avoid tax.
HipstaJules 2y ago
Love the article!
wwarner 2y ago
Great read. I knew as soon as I saw EBITDA that Amazon would be used as an example, but the savings for prepaying for beef blew me away.
- bluGill 2y ago
  That is why just in time generally works so well, it reduces costs all down the line. you don't even need to pay in advence, just order in advance with no cancleation clause.
scott_w 2y ago
This was a great read and definitely fits into something that regularly crosses my mind: “what you say is incorrect but it will take a lot of time and energy to explain why.” The length of this article definitely proves this point! Just to nitpick (and not detract from the article) this point: > Once you have less skin in the game, it is easier to make bad decisions. The author argues this is due to a) having a capital buffer to cushion you, and b) having more time to waste. I actually don’t think this holds true. It’s possible to make bad decisions BECAUSE you have skin in the game. Would you take a 60% bet if the downside was losing your home? Would you do it if the cost was someone else’s home, that person owned an entire city and they’d given you that home for the express purpose of placing those bets? I saw something like this when the founders at my work promoted someone else to be CEO and, a little while after, took cash out the business (legally) with the express purpose of derisking themselves. They recognised that they weren’t able to take the necessary risks to push the business forward, so appointed a CEO with less skin in the game and reduced their own exposure. It paid off.
dudeinjapan 2y ago
Great article, shared with my team. Nick Kokonas mentioned is also the founder of the booking app Tock.
imheretolearn 2y ago
> Once you have less skin in the game, it is easier to make bad decisions. I beg to differ. I think _this_ article is incorrect because it assumes that above is true. The money that you raised from venture capital is literally oxygen for your company. It is _your_ lifeline as much as it is the VC's skin.
sweeter 2y ago
these are the exact same arguments people make against something like UBI or really any public benefits. "starving people feel motivated to eat food, so they work to make money to buy food. therefore starving people is the correct thing to do because I believe that if we give people food they will be lazy" I have personally seen a handful of people in tech and tech influencers argue that if people had all their basic necessities met, then they wouldn't be motivated to do anything and they would just play video games all day. To me, this is a profoundly privileged opinion to have that follows this exact same hyper-idealistic thinking pattern. It comes from these "first principles" that are naive at best. In reality it is more so the bias of the person showing through, we can analyze these systems, look at the data and we won't be coming to these conclusions. These "first principles" are not based on data or understanding. They are based on emotions, personal experience and biases. ie "I was lazy as college student, therefore all people are lazy.. therefore if people had their needs met, they would also be lazy like I was... therefore depriving people of basic necessities is actually the justified thing to do" I say from my multi-million dollar house in North Dakota with my 300k a year salary and cushy full-time youtube platform.
- jollofricepeas 2y ago
  In the case of homelessness… We’ve learned both that if you … 1) provide free housing people will use it 2) fine/jail people for camping on the street and in parks it works as a deterrent Why not both? I feel lazy right now but feel free to find your own sources for the points above. The jailing one is from a study done in the Nordic states…last I remember.
- lelanthran 2y ago
  > these are the exact same arguments people make against something like UBI or really any public benefits. "starving people feel motivated to eat food, so they work to make money to buy food. therefore starving people is the correct thing to do because I believe that if we give people food they will be lazy" Hyperbole much? The mainstream arguments against UBI are nothing like this, because we already have systems in place to give starving people food.
bluocms 2y ago
> Once you have less skin in the game, it is easier to make bad decisions. The author argues this is due to a) having a capital buffer to cushion you, and b) having more time to waste. It’s not wrong per se but worded to hide the benefit. Having less skin makes it easier to take higher risk. Which means more “bad” decisions but also with higher potential. ———- While the prepayment strategy described here is interesting, I'm skeptical about some of the claims and implications. Here's why: > So how much should they discount it? So let's say we're going to buy steaks. We're going to pay $34 a pound wholesale for dry aged rib-eye, we get net-120 (normally). So I call the guy and say "I'm going to use 400 pounds of your beef a week for the next 4 months, for our menu, which is about about $300,000 of beef, what (would) we get, if we prepay you?" And he was like "what do you mean?" I'm like "I want to write you a cheque tomorrow for all of it, for four months." And he was like, "Well, no one has ever said that." So he called me the next day, he said "$18 a pound" … so … half. Half price. 1. The 50% discount seems implausibly high. Even considering the benefits of prepayment and volume commitment, typical early payment discounts in most industries range from 1-5%, rarely exceeding 10%. 2. The story implies this strategy reduces waste, but the restaurant's beef consumption remains unchanged. The butcher isn't selling more beef overall, just securing a guaranteed sale for a portion of their product. 3. While prepayment does reduce risk for the supplier and improve their cash flow (which justifies some discount), it doesn't fundamentally alter the supply-demand dynamics or the perishable nature of the product. 4. If such extreme discounts were readily available, it suggests either highly inflated initial prices or an incredibly inefficient market. In reality, these price disparities would likely be arbitraged away quickly. 5. The net-120 terms do carry risks (default risk, cash flow pressure, inventory carrying costs), but it's unlikely these factors account for such a large portion of the price. The principle of prepayment providing mutual benefits is sound, but the magnitude described here is likely overstated or oversimplified. A more realistic scenario might involve a combined discount of 20-25% at most, factoring in prepayment, volume commitment, and possible seasonal factors. This story, while engaging, highlights the importance of critically evaluating business anecdotes, even from seemingly authoritative sources. The restaurant industry certainly has room for innovation in supply chain and financial practices, but the impacts and benefits may be more nuanced than presented here.

>> If you start from a wrong set of axioms, you would eventually end up with a flawed conclusion. While cash flow comes into it, I think the primary axiom which is different (between VC and bootstrap) is the definition of success. A bootstrap company is successful if it makes a profit, and remains in business. Some growth is nice, but there are plenty of one-man / familiy businesses to show that growth is not required. By contrast a successful VC business goes out of business early, or with (these days) a multi-billion $ exit. Like a company that exits with a $50 million OVER investment is a failure. If you want to win huge or nothing, then VC is the path to that. As a founder if you want to retire with money in the bank, then VC is "probably" not the right choice. Of course the optimum might be a mix- take VC money till you're 30, if it doesn't work out you still have time to build a nest-egg the old fashioned way.

EGreg 2y ago
I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace? Is there something in the SAFE note or whatever, that says the startup MUST fail fast, go big or go home? It can grow methodically, can't it? The closest explanation I've ever heard is that VCs do "signaling" in future rounds... but listen, if you have a few extra million dollars to grow your startup, and you still can't become profitable after that, then something's wrong with yoru business acumen, in my opinion. Anyone with a few million dollars is able to hire people and create a profitable product. What happens if a company pivots to being profitable "too early", what can the VCs do?
- zhoujianfu 2y ago
  That is the ideal strategy, but easier said than done. Once you’ve got that cash it’s very very hard to act like you don’t have it… especially when everybody knows you do.
- cshimmin 2y ago
  Huh, I’ve always assumed it has to do with some about of “de jure” control over the board that the VC assumes when the capital is raised. If they don’t like the founders growth strategy , can’t they just throw them out? Or is that not how it works?
  - fleischhauf 2y ago
    I guess it mus be something like this, I don't think someone would invest a rather large sum without having something like this in place
  - bruce511 2y ago
    Owning a company is different to owning say a bicycle. When you go buy a bike, you go into a store, get the bike, leave behind some cash, and you're done. Not a lawyer in sight. A company is a different animal. Lawyers, bankers, suppliers, partners, accounts and so on. Lots of paper gets signed by founders and investors regarding ownership, liabilities ("for all debts current and future") and so on. When VC capital comes into the mix things get a LOT more complicated. you can't just "give the company to the employees" because, frankly, that would be really bad for the employees (what liabilities are you taking on?) It'd also be really bad for current founders and investors. (There's likely paper floating around linking you to the company, and that doesn't go away just 'cause you lost interest etc.) At some point it's all just too complicated and too scary for the old owners and the new owners etc. Basically the risk (to all) just exceeds the potential value of what is there. Then there's agreements with banks, suppliers and so on, which can on occasion be "non-transferable" so it's not even just as simple as creating a new structure and moving all the IP into that. I'm speaking generally here - your mileage will be vary a lot depending on the exact circumstances.
- rented_mule 2y ago
  During the dot com boom / crash, I worked at a profitable, VC funded startup. I don't know the legal / financial mechanism by which they did it, but our VCs shut us down six months after the crash. They wanted to put all of their attention into the other company in the portfolio that survived the crash, Yahoo, because their revenue was already far higher than ours could ever be. We were profitable (100s of K per year on revenue of a few million a year - small potatoes). Those numbers were growing steadily, even after the crash, but they weren't going to explode. We were given 30 minutes to collect our things and leave the building, but I suspect our founders knew a day or two earlier. They made a lunch reservation for all the employees that same day so we could say goodbye to each other, but we had to pay for it ourselves. It was a very strange experience.
  - langcss 2y ago
    That makes no sense to me. They could give the company to the employees instead right? Unless they wanted the code or something.
    - nine_k 2y ago
      If the company was seen as a competitors to Yahoo, it looked reasonable to shut it down. The VCs invested in several companies that had a promising direction, then shut down all but one that was growing fastest and grew biggest.
      - rented_mule 2y ago
        We weren't in competition with Yahoo in the marketplace. But we were competing for the VCs' focus, and that's still competition.
        EGreg 2y ago
        But I dont see how they can force the founders to shut down the company They maybe gave them a big carrot u didnt know about
- fragmede 2y ago
  Given that Wistia, MailChimp, Patagonia, and GitHub, among others did the seed/series A, profitability thing you suggest, there are other mechanics at play here. Specifically, as the article raises, profitability as in net revenue isn't everything. edit: swapped Basecamp for Wistia, because Basecamp did not take VC money.
  - EGreg 2y ago
    Basecamp took no VC money (Except for Bezos Expeditions many years into it)
    - fragmede 2y ago
      you're right! edited.
- mewpmewp2 2y ago
  It depends on the product. The longer you have to push for the profit the hogher the reward sonce everything easy is already done. Things that are left to do have higher and hogher barrier of entry and depending on the business it will take a lot more time and up front capital to have a chance at profitability.
- ftlio 2y ago
  VCs with board seats vs you are trying to run your company with all its intricacies while VCs are often managing you as yet-another-in-some-tranche.
- jasode 2y ago
  >I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace? Is there something in the SAFE note or whatever, You're looking for something in legal paperwork with Terms & Covenants that for some reason is unstated in public discussions. The real underlying reason your idea of "just take the VCs money and do the opposite of what the investors want" isn't common is that it goes against the founders' personal integrity of doing business honestly. This means the founders not lying to VCs when they make presentations with the reasons for raising capital. I.e. the founders forecast TAM Total Addressable Market for revenue, forecast costs for servers and employees, explain their ambitions for growth, etc. The type of founders trying to get in front of VCs to convince them to fund their startup are supposed to be a self-selected set entrepreneurs who inherently want to grow fast and don't need VCs telling them to do so. If honest business dealing is the premise, then there's no need to "trick" the VCs into wiring them millions into the startup's bank account and then tell them "oops, I lied in my presentations and now that I have your money, I just want to grow slow at my own pace." Your question can also be modified to ask about a VC fund's intentions: "Why can't a VC fund raise money from LP (Limited Partners) and then just live off the guaranteed 2% management fee instead of taking risky investments and possibly losing money?" -- What stops VCs from doing that is the venture capitalist's personal integrity when asking the LP for money. With that said, there can be a difference in legal mechanisms between an angel/seed round with no board seat taken by a VC -vs- Series A with a VC on the board. At later stages, the board can outvote the founders and/or fire them.
  - TeMPOraL 2y ago
    It's interesting how, in this view, founders and VCs compartmentalize. What you call "honest business dealing" between founders and investors usually implies quite dishonest dealing with customers of the startup. The established pattern of growing fast and aiming for an exit already necessitates wringing in growth through dishonest means and, in the best case of a successful exit, eventually leaving the users/customers out to dry while the founders ride off into the sunset with full bank accounts.

lifeisstillgood 2y ago

The flaw is in the step 2. - raising capital reduces skin in the game which reduces “incentive”. Honestly heard this before in things like “don’t allow founders to cash out in early rounds they won’t be hungry”. This is akin to “if you take the shackles off your slaves they will run away” Taking on capital reduces risk for the founder which makes it more likely they will take better long term decisions. There is a balance obviously - if you give me a billion dollars for my pitchdeck I will certainly feel reduced risk but that may be offset by the risk the owners of the billion now take on. But yeah, the flaw is thinking hungry people make good long term decisions

fragmede 2y ago
being hungry means people are driven to make decisions, just not necessarily good ones. they're after the drive, and hopefully acumen, but drive is more important than acumen, they hope.
- lifeisstillgood 2y ago
  Is that the “VCs have never been hungry, met human beings or read any history” theory? :-)

ftlio 2y ago

Great read, especially from the perspective of just trying to understand why people overfit certain thinking to certain problems. My startups perspective: I think it’s hard for people to understand the subtlety from all the memes and hearsay. We hear that you need to talk to your users to understand what to build, but I’ve seen this fall flat on its face and lead to extreme confusion, several times now, when you’re not talking to your users as a matter of observing your product/business model against reality to then update the axiomatic thinking that (hopefully) lead you to its current iteration. I’ve seen this play out as a cringy ask to “let us know if you think of any other features you might like” met with puckered faces from customers that essentially said “or how about not because my job isn’t to build your product?” This is Henry Ford / Steve Jobs talking about faster horses. You’re not asking your customers what to build. You’re asking them to help you understand the reality against which your logic plays. Then there’s the opposite, where a business marches forward because some axiomatic thinking has determined that the macro environment should support it, not updating itself against a pending catastrophe in cash flows that leads to cuts that further undermine its ability to exist even within its own framework. Design and test from first principles, but operate for the pain of as many rounds as possible. Maybe one day you can truly optimize and it won’t hurt as much.

IneffablePigeon 2y ago
Yes. What you ask is just as important as whether you’re talking to your customers. The Mom Test is the best book on this.
- reducesuffering 2y ago
  The Mom Test also talks about getting the problems from the customer but owning the solution how it solves the problems they have.
devjab 2y ago
I think you should be asking about their work, and try to understand their business processes rather than what they want from your software. Then you can spot their pain points and develop features for those. I know this is easier when you’re an internal developer, but the best way we have to spot important features (and the removal of some) is to simply spend a week in the shoes of an employee using the software. Everything which annoys you, annoys your users.

graemep 2y ago

There are a few very strange, almost unbelievable, things said about people's understanding of the issues. I can understand that startups and small business may not understand that value comes from cash flow not profits. The value of an asset is the value of the discounted cash flow. This is very basic to the theory finance, so how come banks and wall street did not know it? There has to be more to this. just being an institutional investor looking at selling at a profit as soon as possible. The stuff about payment terms, speed and pre-payments is standard good cash flow management. Did these people have no professional advisors explain this? This is literally business textbook stuff. I have the textbooks (even the MBA ones, which are a bit more basic cover it all in the first few chapters). The British supermarket chain Kwik Save financed its growth (in the 1970s) by getting long payment terms and selling for cash, and they were imitating the strategy of similar businesses in the US. This is not new. I read the Bezos quote as primarily talking about long term vs short term, not cash flow vs profit measures. I am sure he understands both issues given his background in banking and investment, but here he is really talking about looking at the long term. It makes sense given he owned a large chunk of the business he intended to hold, rather than being focused on next year's find manager league tables.

refurb 2y ago
I can understand that startups and small business may not understand that value comes from cash flow not profits. This is not correct. You can have positive cash flow over a period but still be losing money. You can also have minimal cash flow but be wildly positive. Cash flow is one component of value, but not the only one.
- deleted 2y ago
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- graemep 2y ago
  Financial theory says otherwise. The value of an asset is the value of its discounted cash flows.
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roenxi 2y ago

In this case the argument is flawed because it is too loose in defining a bunch of words and premises. Eg, you can't argue about "bad decisions" because in this case it is a meaningless term. With the frame in the argument it likely isn't correct to say that "once you have less skin in the game, it is easier to make bad decisions". You are still empowered to make the best decisions you can, having less skin in the game doesn't change that. The skin-in-game principle is a pithy way of talking about principle-agent risks. That is to say, it is a problem for the people fronting the money, not the people on the receiving end. The people on the receiving end are strictly better off (ignoring that they're going to have to trade away control to get the money, obviously - they have strictly more options in the short term). And the people giving the money will still invest despite that, because they need to take risks to earn money - their strategy is to take risks to earn a premium, so they're looking for sensible risks to take.

totetsu 2y ago

This was posted 4 years ago also. https://news.ycombinator.com/item?id=25357669 https://news.ycombinator.com/item?id=25357669

brador 2y ago

The flaw is unwritten step 0: The goal is to make money not run a startup. A startup is a means to an end. Borrowed money gets you there faster with less risk to self.

rwmj 2y ago

This is true from my very limited start up experience. Our start up was also self-funded. There were times when there was work left on the table, because we couldn't afford to hire an extra person to do the work, because we didn't have the cashflow to pay them for the first few months while they came up to speed.

wodenokoto 2y ago

I had a an accounting class in college and cash flow never clicked. I get the examples, especially the restaurant one. But I don’t blame anyone for not being able to play cash flow games.

nick3443 2y ago
Simply put, assuming the books will balance eventually, would you rather hold the money or hold the IOU, and for how long? If you hold the money as it changes hand, you can make money off of that (or use it for opening the next store). For a corporation where revenues are consistent, 90 days of payables that you haven't paid anybody yet could be equivalent to tens or hundreds of millions of interest-free loans. Home depot notoriously has payment terms that can extend beyond one year. Edit: To add on to that, understanding the accounting of E,I,T,D, & A (earnings, interest, taxes, depreciation, amortization) as in EBITDA is an important factor to grokking beyond the surface of the article. Basically cash accounting versus amortization accounting.
- SoftTalker 2y ago
  > 90 days of payables that you haven't paid anybody yet could be equivalent to tens or hundreds of millions of interest-free loans ... for the first 90 days, it seems to me. Then you're back to paying them, they're only time shifted. So it strikes me as a way to take a 90 day loan, once. What am I missing?
  - catherd 2y ago
    It's a forever loan for whatever your average payables total to over 90 days (so $10k every month would be a $30k loan). The loan lasts forever or until you close out that line of credit/wind up the company.
    - nick3443 2y ago
      The loan lasts as long as your payables continue to average above $10k/month (or 30k in every rolling 3mo period). Businesses get into trouble when they have a short term disruption and suddenly their cash flow is impacted, then they have no more receivables and have to quickly come up with money to close out the payables. If they are already over leveraged or don't have creditworthiness then they can become insolvent.

golol 2y ago

So as I understand you play these games with cash flow but ultimately the objective eventually is to still turn that into profit. After you've grown your company for several decades at aome point you stop growing and you start milking it. Similarly you want to accumulate float as a restaurant to prepay your suppliers to get better prices and hence more profit.

spydum 2y ago
Actually,I don't think you ever need to be profitable, as long as you are cash flow positive, there isn't really a reason to stop the merry-go-round. It sounds weird, but if every month you collect more cash, and you pile it into future investments/raw materials, it just turns into more cash flow later.
- deleted 2y ago
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- yuliyp 2y ago
  Huh? The ways to be cash flow positive but unprofitable are borrowing/investors putting money in, depreciation adjustments, or growing accounts payable. All of which eventually stop.
jdmoreira 2y ago
Not necessarily. You can just sell it and get paid. Either selling it in the public markets or private to a PE firm or someone else
- golol 2y ago
  But at some point after the company has been sold again and again someone will want to actually make money off of that. At aome point the wheel gets turned around and this huge investment should be milked. Otherwise it doesn't make sense. Yea you sell the company and are out of the game but from the bigger view profit is still the eventual purpose of the company, it must be right?

bjornsing 2y ago

Every time I read one of these “thinking doesn’t work” blog posts I come away thinking “omg, these people just have no idea how hard it is to think”. IMHO the only situation you should be allowed to draw axioms and propositions like little balls with arrows between them is if you’re working in a formal theorem proving system. Anybody who has tried that knows that it’s just not true that the conclusion “startups shouldn’t raise money” logically follows from vague statements like “you’ll be more focused if you don’t have much money”.

aeternum 2y ago
Yes, throwing out first principles thinking just because you failed to think about all the first principles is a major error. You can often discover missing first principles by going the other direction. IE what companies were successful largely because they took VC money? If one competitor is taking VC money and another is not, which is more likely to win the market? This article seems to make the common error of destroying a fence before fully understanding why that fence was built.

notpushkin 2y ago

The Startups shouldn't raise money link is dead. Here's the archived version: https://web.archive.org/web/20230102110907/https://ensorial.com/2020/dont-raise-money/ https://web.archive.org/web/20230102110907/https://ensorial....

azeirah 2y ago

From my perspective it is neither wrong nor right. Articles are supposed to be written for a target audience, and I think the only issue is that the original article didn't mention the target audience is people who don't want to aim for the moon, but would be satisfied with just having a stable life where they're in control of their own decisions; in the vein of an indie hacker, a family business or other sustainable ways of doing small to medium business. This is hackernews, and we, as an audience live in a little bubble where the only right way to do business is by disrupting a market and becoming the next Google, Microsoft or Apple. Just like some of the contemporaries that originated from this subculture here like; Stripe, Reddit and openAI. There are many ways of doing business. The original article had a sound strategy for one particular way of business. This article by common cog has another sound strategy for doing business. Different target audiences, different games.

whall6 2y ago

One of the most genius “games” that I’ve seen in real life is Tesla’s offering of a roadster for a huge up front payment to pre-order (~$45,000). They literally created a new product out of thin air that they are untethered to in terms of time or specs (except that it has to be able to accelerate with the force of a jet engine?) to “unlock” millions of dollars of cash flow to fund current operations. (I imagine this to be the brainchild of Zach Kirkhorn.) I don’t know how many startups can employ “pre-order” tactics with their lack of brand power, but the basic essence is probably useful.

dfhvneoieno 2y ago
That's not "genius". Saying "give me money now for something later", making it vague and then not delivering isn't new or genius. It's something which is illegal, and this will be found to be illegal, once there's political will to investigate/prosecute.
- hobs 2y ago
  Yep, that's called Fraud. The only reason its continuing is because the political will to prosecute the rich, especially their big donor friend Elon who they've been giving billions of government subsidies to - investigating him after helping him makes them look bad too, and oh boy did MANY state and federal dollars flow his way.
  - ethbr1 2y ago
    It's fraud if you never deliver. It's certainly not fraud if you are making progress towards delivering at some nebulous future date, and there was no contractual delivery date in the pre-sale. It's debatable whether it's fraud if the initial pre-sale expressedly included the possibility of non-delivery (i.e. Kickstarter).
    - dfhvneoieno 2y ago
      [flagged]

anymouse123456 2y ago

Friendly note to folks building unusual businesses. Much of the received wisdom of Silicon Valley startup culture is centered on developing new markets that do not currently exist. This activity has a very specific set of risks and rewards and for that profile, the advice is generally sound. If your business is attacking an existing market with entrenched players, more than half the advice is wrong. Cedric does a great job navigating these differences IMO.

arthurofbabylon 2y ago

This strikes me as an excessively complex argument. Personally, I would zoom way out to work with some more abstract axioms, namely… - Money now is more valuable than the same money later. - The above applies for all parties to varying degrees. - Some operations are money-constrained. - There are ways to move money forwards or backwards in time. Now most businesses are not in a position to financially engineer all that much, rendering the response to a given situation per the above axioms rather simple. However I agree with the piece in its insistence that you shouldn’t just look to the obvious categorical solutions — there may be some interesting opportunities to find in the cracks. This point was well outlined in the example of the restaurant owner securing a discount by pre-paying for ingredients. I would love to hear some non-monetary examples of axiomatic reasoning failures. Whenever I reflect back on a process I led a couple of years prior, I am startled by my limited awareness of dynamics/risks/opportunities — even though I was confident at the time and it went well. These reflections make it clear to me that we are always missing useful information, and I further laud the author for acknowledging this fact.

ethbr1 2y ago
The best axiomatic reasoning failures I've seen are in Thomas Aquinas' Summa contra Gentiles, e.g. 13th century natural law Christian apologism. Don't get me wrong -- they are works of philosophical art and among my favorite texts in all of philosophy. But they also very much abuse the space between axioms to deduce truth which seems absolute but is incomplete.
scott_w 2y ago
The axioms you state must be backed empirically by observing things that happen in the real world. The article explains the real world activities that back those axioms.
RachelF 2y ago
The important axiom you forgot: - The government needs to take your money via tax on profits. Result: Via fancy accounting, businesses can pretend not to have profits and avoid tax.

HipstaJules 2y ago

Love the article!

wwarner 2y ago

Great read. I knew as soon as I saw EBITDA that Amazon would be used as an example, but the savings for prepaying for beef blew me away.

bluGill 2y ago
That is why just in time generally works so well, it reduces costs all down the line. you don't even need to pay in advence, just order in advance with no cancleation clause.

scott_w 2y ago

This was a great read and definitely fits into something that regularly crosses my mind: “what you say is incorrect but it will take a lot of time and energy to explain why.” The length of this article definitely proves this point! Just to nitpick (and not detract from the article) this point: > Once you have less skin in the game, it is easier to make bad decisions. The author argues this is due to a) having a capital buffer to cushion you, and b) having more time to waste. I actually don’t think this holds true. It’s possible to make bad decisions BECAUSE you have skin in the game. Would you take a 60% bet if the downside was losing your home? Would you do it if the cost was someone else’s home, that person owned an entire city and they’d given you that home for the express purpose of placing those bets? I saw something like this when the founders at my work promoted someone else to be CEO and, a little while after, took cash out the business (legally) with the express purpose of derisking themselves. They recognised that they weren’t able to take the necessary risks to push the business forward, so appointed a CEO with less skin in the game and reduced their own exposure. It paid off.

dudeinjapan 2y ago

Great article, shared with my team. Nick Kokonas mentioned is also the founder of the booking app Tock.

imheretolearn 2y ago

> Once you have less skin in the game, it is easier to make bad decisions. I beg to differ. I think _this_ article is incorrect because it assumes that above is true. The money that you raised from venture capital is literally oxygen for your company. It is _your_ lifeline as much as it is the VC's skin.

sweeter 2y ago

these are the exact same arguments people make against something like UBI or really any public benefits. "starving people feel motivated to eat food, so they work to make money to buy food. therefore starving people is the correct thing to do because I believe that if we give people food they will be lazy" I have personally seen a handful of people in tech and tech influencers argue that if people had all their basic necessities met, then they wouldn't be motivated to do anything and they would just play video games all day. To me, this is a profoundly privileged opinion to have that follows this exact same hyper-idealistic thinking pattern. It comes from these "first principles" that are naive at best. In reality it is more so the bias of the person showing through, we can analyze these systems, look at the data and we won't be coming to these conclusions. These "first principles" are not based on data or understanding. They are based on emotions, personal experience and biases. ie "I was lazy as college student, therefore all people are lazy.. therefore if people had their needs met, they would also be lazy like I was... therefore depriving people of basic necessities is actually the justified thing to do" I say from my multi-million dollar house in North Dakota with my 300k a year salary and cushy full-time youtube platform.

jollofricepeas 2y ago
In the case of homelessness… We’ve learned both that if you … 1) provide free housing people will use it 2) fine/jail people for camping on the street and in parks it works as a deterrent Why not both? I feel lazy right now but feel free to find your own sources for the points above. The jailing one is from a study done in the Nordic states…last I remember.
lelanthran 2y ago
> these are the exact same arguments people make against something like UBI or really any public benefits. "starving people feel motivated to eat food, so they work to make money to buy food. therefore starving people is the correct thing to do because I believe that if we give people food they will be lazy" Hyperbole much? The mainstream arguments against UBI are nothing like this, because we already have systems in place to give starving people food.

bluocms 2y ago

> Once you have less skin in the game, it is easier to make bad decisions. The author argues this is due to a) having a capital buffer to cushion you, and b) having more time to waste. It’s not wrong per se but worded to hide the benefit. Having less skin makes it easier to take higher risk. Which means more “bad” decisions but also with higher potential. ———- While the prepayment strategy described here is interesting, I'm skeptical about some of the claims and implications. Here's why: > So how much should they discount it? So let's say we're going to buy steaks. We're going to pay $34 a pound wholesale for dry aged rib-eye, we get net-120 (normally). So I call the guy and say "I'm going to use 400 pounds of your beef a week for the next 4 months, for our menu, which is about about $300,000 of beef, what (would) we get, if we prepay you?" And he was like "what do you mean?" I'm like "I want to write you a cheque tomorrow for all of it, for four months." And he was like, "Well, no one has ever said that." So he called me the next day, he said "$18 a pound" … so … half. Half price. 1. The 50% discount seems implausibly high. Even considering the benefits of prepayment and volume commitment, typical early payment discounts in most industries range from 1-5%, rarely exceeding 10%. 2. The story implies this strategy reduces waste, but the restaurant's beef consumption remains unchanged. The butcher isn't selling more beef overall, just securing a guaranteed sale for a portion of their product. 3. While prepayment does reduce risk for the supplier and improve their cash flow (which justifies some discount), it doesn't fundamentally alter the supply-demand dynamics or the perishable nature of the product. 4. If such extreme discounts were readily available, it suggests either highly inflated initial prices or an incredibly inefficient market. In reality, these price disparities would likely be arbitraged away quickly. 5. The net-120 terms do carry risks (default risk, cash flow pressure, inventory carrying costs), but it's unlikely these factors account for such a large portion of the price. The principle of prepayment providing mutual benefits is sound, but the magnitude described here is likely overstated or oversimplified. A more realistic scenario might involve a combined discount of 20-25% at most, factoring in prepayment, volume commitment, and possible seasonal factors. This story, while engaging, highlights the importance of critically evaluating business anecdotes, even from seemingly authoritative sources. The restaurant industry certainly has room for innovation in supply chain and financial practices, but the impacts and benefits may be more nuanced than presented here.