There is a scene in the 1981 Bill Murray classic “Stripes” where John Winger (Bill Murray) loses his: job, his car, his apartment and his girlfriend in one afternoon. Just after she leaves, Winger laments: “…and then, reality set in.”
I was thinking about this line while attending the recent SIIA event in San Francisco last week. Much of the conference focused on the “new” realities of the software business, especially the software as a service (SaaS) sector. Sessions included: “What is your software company worth?; “How much transparency is enough?”; “Firing and cleaning house”; “Raising money and liquidity events”; and “Managing in a recession”. The basic underlying theme – operating profits and cash flow matter. Big time. They are the ultimate drivers of company valuation, availability of capital and cost of capital.
What I find most surprising is how human beings never seem to learn lessons from the past. This feels a lot like the post-dot com meltdown years (the period where revenues didn’t matter – it was all about eyeballs). I heard a CFO say at the time: “…profits – what an ‘80s concept!” I don’t know how business owners and managers ever get seduced into thinking cash flow and operating profits don’t matter.
To be fair, there are times when profits and cash flow are not top priorities (like when first building a product); however, every business must have a clear path to both operating profits and positive cash flow. You can never get too far away from the fundamental basics of business; otherwise reality will set in.
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