Money Is a Story

In his podcast, Akimbo [], Seth Godin teaches us how to adopt a posture of possibility, change the culture, and choose to make a difference. Here are my takeaways from the episode.

In this podcast, Seth discussed the concept of cash flow, the movement of money. Cash flow is an amorphous concept that everybody should understand well. When used properly, cash flow can be valuable, or someone can use it against us.

While money has value, money cannot define a value for everything we do. As an example, people who sell their music are not necessarily better musicians than the people who do not. If we set out to change people or to make a difference, whether the money comes in is not the point of what we set out to do.

Money flows and is always moving. Keeping the money at the same place, and it decreases in value. Moving money to acquire goods or services that generate additional value is one way to grow the money. Money decreases value when standing still because there are always opportunity costs resulted from not utilizing the money, and we need to pay attention to what those opportunity costs are.

The first rule about cash flow is to stay positive. It is a good idea when we can organize our work to get paid sooner from our customers and to pay our suppliers slower, not by ripping people off. Bootstrappers do this all the time by finding customers who need what they do enough that they pay in advance. We can begin by understanding that some people have a problem that is significant enough that they will pay us in advance to solve it. That also means picking the right people and solving the right problem.

The second rule about cash flow is to understand our margins thoroughly. Most small businesses fail for one of two reasons, not enough business or not charging enough for what they do. The goal is to strive for having customers who will not only pay for the service in advance but also paying a fair price. Buying market share by financing on our customers’ behalf and selling it to them at a loss can work if we can get to a certain scale, but it is not an effective way to grow the business.

The next rule about cash flow is that our inventory is not free. We need to weigh the pros and cons of holding onto an inventory. Selling inventory at a steep discount can recover the cash, but it also means that we might have polluted the market and made it difficult to sell it for a fair price later. Selling too late might incur a much greater opportunity cost because we fail to take the cash and use the cash to invest in another more valuable venture.

The Boston Consulting Group famously divided all products and services into one of four categories: stars, cash cows, problem children, and dogs. A star is something that is growing fast and giving us a positive cash flow. Cash cows are not growing fast, but they have a positive cash flow that pays the bills. The dogs are the ventures that have low cash flow, low profitability, and low/no growth. The problem children are those projects that could take off if we invested enough in them.

We need to figure out where our dogs are and get rid of them. We need to figure out where our cash cows are and make sure that they continue to pay the bills. By doing those two things, we can invest in problem children and do not blow it later when one of them turns into a star.

When we are in the early starting-up phase of our project or organization, our organizational cash flow is largely up to us. If we decide to spend the first few years cutting our overhead to the bone and not borrowing at the beginning, it can end up giving us a positive cash flow. That positive cash flow can give us the freedom to invest in ventures or project that are going to go up in value. If we can have positive cash flow at the beginning and avoid the temptation of debt even when we are not sure what assets to invest in, we will find new opportunities

The game of money tells us that money is always moving, that money grows, that money costs, and that cash flow matters. What we need to do as productive artists and professionals who create things is to put our game hat on when money is involved. It is a game where we can play it well to make more money and to do more of the work that we are proud of, or we can play it poorly and be out of the game. We should not conflate money with our sense of worth as a human.

We now can create something that matters and to do work that matters for people who care. But we cannot do the work well when we are stressed out about money. If we are smart about the flow of cash, we can use cash to our advantage. Either money is managing us, or we are managing money.