I’ve been writing a series of posts on business fundamentals. Nothing new, but a refocus on the importance of the basics any of us learned in our Business Fundamentals 101 courses. The concept of revenue growth has been around for millennia. I suspect after Eve sold Adam the first apple, she went back with a bag of apples, focused on scaling revenue.
At the same time, we learned another business fundamental: To build a sustainable business, you have to make more money than you spend. A concept otherwise known as “profit.”
And there are numerous other fundamentals to understanding the performance of a business and managing growth. Some of these fundamentals, though not all, are in things like P&Ls, Balance Sheets, Cashflow statements. There are other metrics, things like market share, customer sat, employee sat, turnover, OKRs, budgets, and others. There is an understanding of business strategy, operational management, workflow, the flywheel effect, and others that are critical to building organization strength.
All of these are fundamental to successful businesses. I got my introduction to the concepts in courses, but really learned what they meant in work. I learned from managers that had years of experience and who passed that experience on to me. Some through formal training, but most through OJT and coaching. My understanding and thinking of how to drive sustained organizational performance grew as I took on new roles within companies. Again, all nurtured and developed by the people who had gone before me and shared what they learned with me.
These lessons were simply focused on building sustainable growing businesses.
In the past 15 years, a “lost generation” of business leaders has been created. Perhaps, not consciously or maliciously, but we have business leaders that haven’t had the benefit of learning how business works from mentors, their managers, and the people who preceded them in the job.
We have thousands of start ups. We have a generation of founders, and a generation of people who have worked in those companies. They have little or no experience in any established businesses
Perhaps starting as individual contributors, they moving into leadership and senior leadership jobs. They had few role models or mentors from outside their startup segments. They had one mission, growth—exponential growth. Revenue was the key metric, whether measured as ARR or purchases, or something else. Perhaps, more important than the revenue number was the YoY growth of that revenue.
The experience was explicitly, “growth regardless of cost.” So the traditional concepts of a P&L were lost. EDITDA was meaningless except as part of a Rule of 40 conversation. But Rule of 40 calculations could usually be exceeded by 100%+ growth. So revenue (in it’s variety of forms), revenue growth, and cashflow represented the business fundamentals. And the solution to any cashflow challenge was always another round of funding from the investors.
The underlying business model for these was, Built to Exit, rather than Built to Last. This model was perfectly aligned to the objectives of their investors.
And as those build to exit business models started breaking down, either because the organization couldn’t sustain its growth/scaling objectives, certain markets started collapsing, AI changed the market economics for others, or something as simple as the organization was sold to a company that used the “P” word (Profit), we have created a generation of leaders that are struggling.
Furthermore, investors and others started looking at building more sustainable businesses, thing that didn’t require new funding initiatives but that were generating profitable efficient growth.
We have a generation of business leaders that have achieved, in many cases, great “success,” that are lost in understanding the business fundamentals critical in building organizations that last. Some cling to that which they do know, but with failing results. Some are adapting, quickly learning fundamentals they should have learned years ago, but never “needed” to learn. We have an enormous number of people in these organizations, particularly in our GTM organizations that should have an understanding of business fundamentals, but don’t. And this limits their growth and potential.
Business fundamentals are, well, fundamental. They always prevail, at least if you want to build a sustainable business. We build better businesses focusing on these fundamentals. We gain better understanding of our customers through understanding business fundamentals.
There are probably few people that understand business fundamentals better than Warren Buffett and Charlie Munger. This article gives a very high level summary of how Buffett leveraged these concepts: What Buffett’s Exit Means.
Afterword: This is the AI based discussion of this post. As sometimes happens, the discussion is far superior to the post. They get to the ideas I struggle to articulate in a far clear fashion than I have expressed them. Enjoy!
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