Companies reinvest in business

Why companies are in panic of survival in hard economic conditions?

Companies reinvest in business

Primarily because this saves tax

Profit booking is kept lower to take this advantage

Tax escape forces companies to grow by,

saving money and investing it back in business

Public companies,

out of investor outcry can do lot varied things

Putting all money back in business makes it stronger

Money is put back to risk again

Rewards weigh higher than risks, in good time

When companies heading bankruptcy,

Where year on year earned profit is gone?

Since it was reinvested mostly, all profit was put to risk again

Growth changes it all

In bootstrapping phase,

Money is put back to maximize growth

What do you have to loose in early days?

Well ahead on growth path,

Growth rate reduces progressively

Steadily growing self funded re-investments

are consumed by reducing growth rate

There always is an ambient risk

Risk of loosing what ever is achieved so far

When award through growth is limited and risk is elevated

Why put all money to risk?

The gamble

It is gamble,

Put back what you won on repeated bet and multiply fast

It requires consecutive wins at single stretch

Lose once and loose every thing in a single shot

Successive wins raises risk appetite

Self motivating positive feedback builds euphoria faster

Loose wow good fortune in single attempt

And urge for recovery attempt becomes desperate

You feel,

need just one win and

recover everything in a single attempt

before you leave the game safely forever

To bet again requires funds

but funds are already lost

To recover larger fortune lost in single transaction,

you need equally large sums

Odds are against

Loaning funds for last chance

raises risk to survival threat

Repeat attempt with small funds or big

You loose most likely

At a stretch consecutive wins are rare

Even rarer than that is

“Repeat” chance of, at a stretch consecutive wins

which you wanted desperately

A loosing gambler,

must be kept away from playing further

on each round they attempt exponential risk

At a stretch winning gambler,

must be advised to slowdown and

focus on safety than blind growth

move out of the game before it breaks

Balance growth and safety

Recover investments early

Build survival funds

keep transferring part of earnings to safety stock on every cycle

Even you loose,

you walk out with reward

Loosing gamblers loose hard

Once wining gamblers loose harder

Accumulation is effortful

Loss is abrupt

Long played gamble

In bankruptcy situations,

Companies have business down

And costs of operations are high

When revenues are limited

Scale of operations creates cost constrain

Operations can not be get rid quickly

Scaling up operations is a slow effortful cycle

Scaling down is hard and often abruptly cost prone

Companies get locked with operational investments

Operational costs can not be slashed quickly

Business often in bursts

In good times fluctuations are upward

Operations can not handle instantly

Fluctuations stabilized with averaging loads

Operational scale up is capacity building

Since Operations cost,

Operational scaling also scales costs

These costs had to backup by earnings

Earnings depend on throughput from operations utilized by sales

Scale of operations is like style of living

You must downgrade when you can not afford any more

Operations’ scaling up or down has self inertia

Resource utilization affects operational efficiency

Operational efficiency require predictable and continuous load, matching capacity

Utilizations in bursts, offers lower efficiencies

Business when in bursts often demand for high throughput from operations

Throughput of operations is based on capacity, which is relatively inflexible

You can have under capacity utilization causing inefficiencies

You can not have over throughput than available capacity

JIT requires building capacity for peak load,

Peak load is often a short time burst

JIT can be costly as optimal resource utilization is not possible

Less than peak load capacity has to depend on averaging loads,

introducing sluggishness due to lead time

Abrupt changes to operations scale require shock treatment

Flush funds to build capacity and recruit people

Liquidate physical assets and layoff employees

Forces of dark

When on top of success,

every organization shall think itself as winning gambler

Remember Facit story.

System evolve to higher order,

it is continuous process

A revolutionary things changes the way business is done,

this is not everyday phenomenon

Disruption can be caused by alternatives of all kinds that are new and thought to be not so viable for practical reasons

Some categories die as superior one immerge, just under the nose you kept pride for

Watch for Market, Technology and Product against Evolution, Revolution and Disruption

When Safety takes precedence?

Unfortunately to maximize business scale,

Reinvestments are often utilized without taking strategic safety measures

Some part of reinvestment is anyway needed for expansion and growth

But not built a safety is dangerous

It is low occurrence but fetal impact situations

Remind yourself,

If it is possible, it is probable

If it is certain, prepare when time is on your side

When safety shall be built,

Exactly when you think it is not needed immediately now

Having “time on your side” means act now and immediate

A small contribution every time

Companies do not attain financial independence

They depend on recurring cash inflow

Brake it and empire collapse

Lack of building survival funds

Stops them from coming back in the game again

Safety had to built as growth rate starts reducing

Safety must be address when on top of the growth, when it looks unimportant

As growth is attained,

A good chunk of reinvestment must be put into

safety stock, for financial independence of company,

for survival fund for second inning and

for reboot resources if you want to go extreme

Safety stock shall provide financial independence

Some often buy real estate, buildings and rent out, investment in diversified industry, profitable competitor company stock

Something that requires minimum attention to maintain than core business line

Low ROI but safer than core company operations

Safety stock shall allow company to survive for at least 10 years with reduced core business operations are ceased

Survival funds shall be resources that can be liquidated when needed

to build company again after fetal losses

Survival funds are like helmets, which can take one time shock incidence

You need another helmet next time

You must build it again once utilized

You will need survival funds if you do not build safety stock

Use survival funds to diverge into new business

Reboot is extreme thinking, and not considered

Reboot resources are life extension measures

When lost everything and zero activity reached

Reboot must provide bread of the day till you find new start

You need reboot resources when survival funds are consumed

and economic conditions hard