It should be a fairly straight-forward answer, right? But if you’re Uber, the answer is seemingly “someday… hopefully”. Uber lost $2.8 Billion in 2016. $2.8 BILLION. And in Q1 of 2017, investors were pleased the company reduced its quarterly loss to $708M from the Q4 2016 loss of $991M.
“To many readers, the loss is nothing short of staggering. But for Uber's investors, it's actually something to be applauded. Jason Calacanis, an early Uber investor, congratulated the company on Twitter for continuing to grow its sales while cutting its loss from $991 million in the previous quarter. "The trend is good," says Bradley Tusk, a political consultant and investor in Uber. "Revenue up. Losses down, even though they keep investing heavily around the world." Call it the current Silicon Valley mindset. Losing billions of dollars each year isn't necessarily a bad thing, if the company is thought to have lots of potential for sales growth and can show some modest progress in curbing its losses over time.”
I wouldn’t fall into the “something to be applauded” category if I were an investor.
Then there’s Tesla, which lost $773M in 2016, or roughly $13K per vehicle. The losses have continued in ’17, but investors are banking on the more affordable “Model 3” which is in the midst of launching.
While certainly not the majority, I’ve met plenty of business owners who seem to be unconcerned with losses or treading water at breakeven. Worse yet is not even knowing if you’re profitable or not. Either due to inaccurate financials, or just plain old not-paying-attention.
Uber, Tesla and other Silicon Valley companies raise billions of dollars of capital which buys them time. Small businesses usually do not have that luxury. Whatever capital there is came out of savings, a home equity line of credit or a 401(k) loan.
- The time to be profitable is ALWAYS.
- The time to pay attention to finances is also ALWAYS.
- And the time to applaud a modest reduction of a giant loss is the opposite of ALWAYS.
If you don’t have the time or capacity to be diligent about this . . . well, I know a guy. . . .
In fairness, there may be an occasional time to take a calculated gamble, or strategically take a loss for a finite period. But the parameters and triggers to correct it should be clear and agreed to in advance. And the size of the loss should not jeopardize the entire business and livelihood of everyone involved. Many businesses have hung on to poorly performing offices, plants, product lines and divisions far too long, hoping that next year is “the year”.
I’ve met more than one business owner who after several or more years in business had a record sales year, but still lost money. That’s not sustainable; and usually hard to dig out of. Finding a way to be profitable at less-than-record-sales levels is critical.
Sometimes I’m told “My business is different”. Maybe. Maybe not. Regardless of how complex or sophisticated the business is, math is math. In the long run, Income must exceed Outgo. And while the economy is good – as it is right now – it’s wise to be diligent about being profitable. . . and allocate some of those profits to debt reduction or the ever-elusive “rainy day fund”.
Eventually, the business must produce a profit. Silicon Valley can wait for a while. Small-business owners can’t and shouldn’t.
Time to catch an Uber ride to lunch – while I still can! 😊
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