Cash is a fact, profit is an opinion

Many people seem to think that Zalo/VNG must be a bad business because they've lost money years after years. This is a common misconception.

One of the most important lessons that I've learned from doing Calif can be summarized in this great quote:

Cash is a fact, profit is an opinion.

I used to think the goal of any companies is to turn a profit. I learned it the hard way that this is not true. The goal is to generate cash. Posting a profit is merely a timing decision.

To survive and grow, every company must pass the following barriers in this order:

1. Make things people want

2. Sell those things, at a profit

3. Use the realized profit wisely

Nothing else really matters. As an employee, if your job is not closely connected to these three things, you're at risk of being let go the moment things start turning south. This is why it's important to understand how your company's business works, even if you're a technical person.

Most companies can't even get pass barrier number #1, which is the most difficult. As an employee, if your company hardly generated any cash, but your leaders aren't working on #1, it's time to find a new job.

Everyone can become a founder, but you don't have a business until you have paying customers. This is marketing and sales, which is super critical, but today I want to talk about #3.

Let's say this year your company made $1M. You can post it as a profit and pay income taxes which in the US might be up to 30%. This means you'll end up with only $700K in the bank.

This begs an obvious question: What can you do to save on taxes? There are many ways, but the best way is to reinvest the profit to grow your company. As long as your company is growing and you have enough cash to pay your liabilities, you don't need to be profitable.

Most governments encourage this tactic. The tax men always want their dues, but they also want small companies to grow to collect even more money in the future.

This means companies at early/growth stage should never post a profit, unless they can't figure out how to use the money they worked so hard to earn.

You might think spending money must be the easiest thing in the world. No, it's only easy when you spend other people's money. Wisely spending your hard earned money requires discipline and vision.

If a growing company keeps losing money years after years, it's actually a good sign that their leaders know what they're doing. Amazon didn't post any profit until a decade after its founding.

In summary, until what happened recently, Zalo/VNG was doing fine and looked like a great business. Not profitable is totally business as usual, when you are growing.