Stupid, stupid companies
Mar. 30th, 2002 09:40 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
andrewduckerI like to think that the universe is nice and simple. That you can break things down into fairly simple rules that can then be worked with to deal with the world. Obviously, there are exceptions to these rules, but the sign of a decent rule is that it doesn't have many exceptions, and that those exceptions are fairly easily dealt with.
One of those rules deals with successfull business. You need to know your base costs are (building rental, management, etc.) and your costs per product (material costs, manufacturing costs, support costs, etc.) ,and how many people are likely to actually buy your product (at a variety of different costs). You plug these different numbers into a fairly simple graph, and it will tell you if you can actually make any money.
If there is no point on the graph at which your profits are actually above 0, then you don't bother forming a company at all. Obviously this is made more complex by the fact that other are going to be trying to grab parts of your customer base, but you can worry about that separately. First of all you need to know if there's even a possible profit there at all.
Now, I know all of this, despite just having lived with a Business student about 7 years ago. Which makes me wonder what the flying fuck is going on with the management at such companies as ITV Digital, Telewest and others. They appear to have business plans along the line of "Go massively into debt aquiring customers, on the grounds that once we have them we'll be able to sell them products at outrageous prices." This, of course, ignores the fact that customers can just go to a competitor instead.
Ever since the dot-com boom started, companies have been obsessed with lowering their prices to the point where they can make land-grabs, convinced that once they've got the customers, they'll make huge profits eventually. Nobody seems to have any idea how to actually make money out of those customers, and in fact to get out of debt, companies like Telewest are going to have to make thousands of pounds per customer. Considering that many of those customers don't have thousands of pounds spare, and that we're not in the middle of a massive boom right now, it looks like we're going to lose an awful lot of telecoms companies.
Not that I'm massively averse to this. Their infrastructure's will be taken over by companies that do know how to run themselves at a profit, and in the end, we'll all end up with decent connections. But I just can't help wondering what all those execs were thinking, if anything at all
One of those rules deals with successfull business. You need to know your base costs are (building rental, management, etc.) and your costs per product (material costs, manufacturing costs, support costs, etc.) ,and how many people are likely to actually buy your product (at a variety of different costs). You plug these different numbers into a fairly simple graph, and it will tell you if you can actually make any money.
If there is no point on the graph at which your profits are actually above 0, then you don't bother forming a company at all. Obviously this is made more complex by the fact that other are going to be trying to grab parts of your customer base, but you can worry about that separately. First of all you need to know if there's even a possible profit there at all.
Now, I know all of this, despite just having lived with a Business student about 7 years ago. Which makes me wonder what the flying fuck is going on with the management at such companies as ITV Digital, Telewest and others. They appear to have business plans along the line of "Go massively into debt aquiring customers, on the grounds that once we have them we'll be able to sell them products at outrageous prices." This, of course, ignores the fact that customers can just go to a competitor instead.
Ever since the dot-com boom started, companies have been obsessed with lowering their prices to the point where they can make land-grabs, convinced that once they've got the customers, they'll make huge profits eventually. Nobody seems to have any idea how to actually make money out of those customers, and in fact to get out of debt, companies like Telewest are going to have to make thousands of pounds per customer. Considering that many of those customers don't have thousands of pounds spare, and that we're not in the middle of a massive boom right now, it looks like we're going to lose an awful lot of telecoms companies.
Not that I'm massively averse to this. Their infrastructure's will be taken over by companies that do know how to run themselves at a profit, and in the end, we'll all end up with decent connections. But I just can't help wondering what all those execs were thinking, if anything at all
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to-morrow
Date: 2002-03-30 02:30 pm (UTC)What I'm finding is a general rule; so far it's the closest I've come to perfection.
--Breathe in, breathe out. Repeat till satisfied or finished.
Cheers
Date: 2002-03-30 02:34 pm (UTC)no subject
Date: 2002-03-31 04:09 am (UTC)Why would you ever think a business cares about you? If it can get a profit by ripping you off, that's find too.
What they care about is a quick profit. And there are plenty of people in a company who will make money even if the company loses it.
no subject
Date: 2002-04-02 07:33 pm (UTC)The justification to the investors probably goes something like this -- "Sure, we're bleeding money. But look how much we've already bled! The other guys have too! They're bound to be in worse shape than we are! If you fund us just a little longer, we'll be the last ones standing, then we set the price as high as we like! You don't want the millions you've already invested to be for nothing, do you?"