[ihatethissite]

The author creates a false dichotomy when they write that business is either about making profit or managing cash flow.

Making a profit requires cash flow management, but managing cash flow does not require making a profit. This article does talk about managing cash flows in a way that involves never making a profit.

First, and tangentially, it's interesting that real estate developers do this all the time.

Second, it's interesting that this article shows not only why cable companies regional monopolies are extant, but also that their continued existence relies on the preservation of those monopolies.

These and other companies that rely on a strategy of unfettered subscriber growth, in this case leveraged as a marketing tool to creditors to acquire additional debt, is no different than a Ponzi scheme. It makes the fatal assumption that subscriber growth can continue ad infinitum.

But, similar to the amount of free energy in a system, the number of potential subscribers remaining is finite. Eventually, cash flows will fail to meet the projections sold to creditors and established as assumptions in their financial models.

Thus arises a situation that remains tenable only as long as subscribers remain subscribed for as long as is required to service the debt outstanding at the time the growth stopped. Because the debt didn't go anywhere. It hasn't disappeared. Today that debt is sitting on the balance sheet of every one of America's cable providers: the direct result of a flawed line of thinking promoted by the author.

Consider the implications. To remove the regional monopolies of the cable companies is to not only destroy their subscriber base, and thus their cash flows, but also the cash flows promised to their legion creditors. Every one of these creditors now has a vested interest in the preservation of those monopolies, having themselves extended and received credit based on said promises of payment.

I propose that, contrary to the statements of the author, the proof presented by their friend is not "framed incorrectly". Rather, it shows something the author doesn't wish to see.

[dalbasal]

I don't think he's presenting a dichotomy at all, false or otherwise.

To paraphrase heavily, he's delving into the fact that these are simply different things. Profit, free cash, EBITDA, etc. These have different implications. Particularly, they translate into capital very differently. Ability to borrow. Ability to raise equity. Pay dividends. This translates into radically different trajectories and outcomes.

In 2020 terms, you might also include growth rate, MAUs or the current trendiness of the startup. This also, essentially, translates into real world effects. Big ones.

Most people, including many "business people" don't quite realize the implications of a positive or negative float. The difference between a -20 day float to a +20. With a positive float, growing itself is cash generative. With a negative float, growing is cash consuming. A business might grow, produce less profit but more cash.

Outside of accounting, there's a tendency to dismiss this nuance as trivial and convergent in the long term. In reality, the future never comes. It's always the present.

[fairity]

> Outside of accounting, there's a tendency to dismiss this nuance as trivial and convergent in the long term. In reality, the future never comes. It's always the present.

So long as you're running a profitable business, cash flow management does seem to be a pretty trivial problem. The difference between positive and negative float is just a loan. And, if you can show a bank that cash is guaranteed to come in at a future date, you will have no problem bridging the gap with a loan or line of credit.

[dalbasal]

This is exactly the fallacy this article is challenging. It is simply not true in business reality, whatever the chalkboard fungibilities.

The difference between a positive and negative float is a structural difference that has long reaching implications. On that chalkboard, the difference between a publicly listed company and a family owned business is trivial or esoteric.. best explained by portfolio theory or somesuch. Sometimes abstractions miss the point.

[mpmpmpmp]

There is no such thing as "cash is guaranteed to come in at a future date". Counterparty risk is pretty much impossible to remove, only to trade away to another party.

[dalbasal]

Or said another way, the model is not reality. It is a way of reasoning about reality, approximate reality, etc. Reality is not arbitrage-able without artifacts.

[chii]

There are some flaws within your argument that i like to point out.

> why cable companies regional monopolies are extant, but also that their continued existence relies on the preservation of those monopolies.

it's a moral judgement about monopoly that you imply (it being bad). But the article makes no such judgements at all, and that by bringing in this you direct the argument towards one of ethical behaviour, rather than logical deduction and application of such for businesses.

> no different than a Ponzi scheme. It makes the fatal assumption that subscriber growth can continue ad infinitum.

That's not the defining feature of a ponzi scheme - which is that it is using the investment of new investors to pay out existing investors (and only doing so, rather than undertake a business). The cable companies _do_ produce something, that of cable provision, maintenance and services. Even if they assume infinitely growing subscriber base, it is not a ponzi scheme.

And growth doesn't have to be ad infinitum - just large enough to last long enough until the next disruption (e.g., starlink might disrupt cable companies). There's nothing wrong with a company dying - the bag holders and creditors who hold them last will lose out when they are disrupted, and this is a good outcome. Investment has risks, credits has risks.

[anonunivgrad]

Yes, I've thought about this too. But almost all successful businesses eventually go under[1]. Whoever was holding the potato last gets an egg on their face. That doesn't mean that the business was a "failure" though. It succeeded wildly during its heyday, making livelihoods and sometimes fortunes for many people, employees and shareholders alike.

I'd love to read something more about this line of thinking from someone more knowledgeable in the area.

[1] I think, but maybe not! It would be interesting to trace the "capital lineage" (made-up term) of various successful businesses from the late 1800s through today, for example.

[CallMeJim]

> Making a profit requires cash flow management, but managing cash flow does not require making a profit. This article does talk about managing cash flows in a way that involves never making a profit.

Isn't the exact opposite true?

I work with businesses which import goods and sell them. The vast majority of these make a steady profit without any thought to cash flow management. Accounts receivable are a mess, payment terms are long and they have a lot of cash tied up in working capital - but they are making enough of a profit to make up for this.

In contrast, you can stay in business making a loss with clever cash-flow management, but not forever. Equity will decrease year over year, and new sources of cash (lending, selling shares) need to be found to finance the continued operation of the business.

[hansvm]

The opposite isn't quite true either. Cash flow management can allow, e.g., a growing business to continue to operate even without additional sources of cash. So long as the business can turn a profit before growth has stalled for too long there will be no issues.

[blackrock]

Is Starlink about to make cable TV and satellite TV obsolete?