Replies to This Discussion

Permalink Reply by Abey John on February 24, 2012 at 10:25pm

Thanks Alok.  As usual you bring a dose of much needed sanity in understanding how business actually works.

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Permalink Reply by Ankur on February 25, 2012 at 10:49am

Nice way of connecting Youtube business in B/S vs P/L model. 

What type of business is Education business - B/S or P/L ?

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Permalink Reply by Brijesh K on March 8, 2012 at 3:59pm

Hi Ankur, 

Education seems like a purely P/L business model.

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Permalink Reply by Piyush Siinghal on February 26, 2012 at 3:20pm

Great Article Alok. Is there some way the points can be kept handy, like a bible! (may be).

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Permalink Reply by rs on February 29, 2012 at 6:21pm

So, i guess it all boils down to COST of CAPITAL.

No business [ here i mean a real business that lasts more than a decade ], can be built without sustainable long term assets to facilitate PNL. It never was a viable way, and i guess, it never will be. if you see any business that is milking cash today, it has to have a great asset base, again in any avatar in its present or previous lives. So if a few flicks who call themselves entrepreneurs, have honed their skills at a large enterprise and then make a PNL business, do carry assets paid by someone else. Again to the point of any large company of today, i mean TCS, Infosys, Wipro, Cognizant, etc. became big PNL business only because of the assets built by them for years, including technical and marketing skills. Any other economic activity like steel making, automobiles, dressing people, vanity, entertainment, ANY, if it has to be a business needs a strong balance sheet to be built.

So for all entrepreneurs reading this, please focus on a balance sheet with assets, as alok says, it takes 10 years to make it big, and i guess about 4-5 years, to just make the assets you need. People may not see the value of the assets you have built, but focus on doing that. They will eventually see it. Do not listen to people who want you to explain how will you make money in 10 mins. Very few people understand it that fast.

And asset building cannot happen with today's abundant capital. Only because it is not cheap. 5x and 10x VC formulas are for entreprenuers to pay for the venture capitalists mistakes. Even after a 1:40 funding:receiving business plan ratio their error rate is often more than 60%. In most cases, with that kind of success rate, you are considered a failure.

The Indian ecosystem for early stage capital is not yet mature for today's markets, especially the internet market. Great companies have always been built in this nation and under every economic condition. This aberration will pass too. eComm cos have shown, that a quick and large PNL business is only about finding the larger fool.

Great Investors have a great track record to back companies that will make a lot of value. They do not have a 1:10 [ or 1:5 or even 1:3 ] success ratio. For every company they back, it creates value, not just for themselves but the ecosystem at large.

So there are two ways then, one find lower cost of capital or substitute a higher cost of capital by finding a better team including the investor. The second is the best way to make the odds in your favour because finding lower cost of capital in highly inflationary times is not going to be possible even with great efforts.

Hence understand what is the value you are creating and focus on making a strong Balance Sheet to make a strong PNL.

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Permalink Reply by Brijesh K on March 8, 2012 at 3:58pm

Dear Alok, 

Its very interesting slideshow. Thanks for sharing this wonderful knowledge source.

Keep it up!!

Regards, Brijesh K

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Permalink Reply by Anirudh B Balotiaa on March 13, 2012 at 4:51pm

I have a question Alok...wont Salaries come in the B/S slide also? As salaries are still need to be paid regardless of when the actual sales say for example in the form of products gets started?

Salaries don't necessarily generate immediate revenues..in-fact majority(in volumes) are purely from an asset/capacity building point of view..which IT firms like TCS, Infosys do consistently.

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Permalink Reply by Alok 'Rodinhood' Kejriwal on March 13, 2012 at 5:28pm

i dont't think u know accounts.

salaries are P&L items.

If u build a P&L business then its an expense.

If u build a BS business then its in 'accrued losses' on the asset side.

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