Re: Getting Mega Projects Done

From: David Summers (david_at_ualmiles.com)
Date: 11/29/04 

Date: 28 Nov 2004 19:47:45 -0800

larrison@my-deja.com (Larrison) wrote in message news:<6dee564a.0411280238.2fb51052@posting.google.com>...
> And lastly, you need to be very conscious of two dictums -- "The
> customer doesn't care what your cost is, only the price/value to
> them", and "Revenue is not earnings". I've noted the first one
> above, and from some of your writings, the second may also be
> pertinent. For example, wanting to get $5 B revenues to cover 10%
> interest on a $50 B investment doesn't cut it. Out of the revenues
> (sales) you make, you have to pay your taxes, repay your loans,
> maintain the system, pay general & administrative expenses, any
> operating costs, fees or expenses, etc -- and also pay out a good

Revenue is not earnings, but there are many industries that have a
debt load where the interest eats through much of the revenue. That
eliminates taxes on the amount (taxes are on profit, which does not
include interest on loans). An example of an industry set up this way
is the airline industry (which I sort of work in). (Not sure if that
is a point for or against this business model though - the airlines
are in serious trouble mainly because of a lack of agility that this
at least contributes to.)

> return to your investors in some manner and reinvest to stay ahead of
> your competitors. You'll never have a 99% profit margin -- taxes
> alone will eat up a big chunk of that. Depending upon the business
> you can get varying margins overall (and can expect different margins
> depending upon where in the product cycle you are...), but on average
> profit margins of over 50% are hard to justify and sustain. (I'm not
> saying that they are impossible -- just hard to sustain, since
> everyone else sees you minting money and starts trying to come up with
> competing projects ASAP.) So that notional $5B in sales per year
> probably needs to be $10B or $15 B or more, to show your investors you
> can sustain revenues long enough to pay them off. On past business
> analyses, I've found as a rough rule of thumb, having annual sales
> roughly equal to your investment level is reasonable... (and with the
> caveat there are about a half dozen factors you need to look at other
> than this +/- 50% rough rule of thumb to really determine if that's a
> reasonable plan.)

Interesting. I wonder if this is also because investors need a 10x
return on investment to break even across their portfolio? Ten times
the interest alone comes pretty close to the investment level...

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