Fast Cash vs. Slow Equity

The usual value of equity is the cash it can generate. This is a wordy way of saying:

1) that some businesses will be profitable short term, and some in the long term and it can be worth sacrificing one for the other as you end up with a more valuable business, and, 2) sometimes you sell a business for a lot more than its value as a standalone business, for various reasons - for example it lets a big business fill in a gap in their product line, or remove a potential future competitor, or remove a low cost alternative to their existing services/products, or help them sell more of something related, or gather more data..... or are just irrational at times.

The phenomenon in two is common in technology businesses, but is not common elsewhere. its most common during bubbles.

Not exactly the same but this reminds me of Joel's Strategy Letter I [0] regarding knowing what kind of business you operate, and consequently how you should grow it.

[0] https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-...

A cash business can have quick linear growth, whereas an equity business will have slower but exponential growth.

...or not. Businesses do fail. A cash business and an equity business are just as likely to fail as one another. Working in the cash business means you're realising the value when it happens, rather than 'banking' it to realise a compounded value later. If the business fails for any reason you'll have been much better off working in the cash business. This is the downside risk of working for equity.

I think a good chunk of services I receive from small businesses are underpriced due to people not realising the business they're starting has an upside similar to being an employee but with much greater personal financial risk and working stress. There's really not that much scalability to something without franchise potential.

You can also have fast equity and slow cash. This is kind of oversimplifying business accounting. Learning some basic accounting may quite literally pay dividends for any project.

An investment strategy focusing on cash flow versus equity growth is also an important difference between most people who invest in businesses and venture capital.

Equity business is thoroughly inaccessible to the vast majority of people, especially the IT people. It requires being an insider at least to a degree, and it requires apart from knowledge and skills, at least some luck.

I've seen a lot of extremely bright, talented and hardworking people trying to play that game - all failed, some ruined their entire lives simply for refusing to give up for too long. While those who went into cash business - as simple as an outsourcing shop - are almost all doing fine.

Nudging people to try for "equity business" is a dangerous advice to give.