It may seem crazy that a web company can be worth millions in stock and still somehow not make a profit, but it is entirely possible, and even likely, in the current economy. In order to turn a profit, you have to consider more than just the total assets that a company has. You have to consider operating expenses as well as projected growth and how the company fared in light of those initial projections. If a company under performs, then it is entirely possible for the millions they have today to be worth much less tomorrow. Look at companies with primarily web based revenue, such as Netflix. The movie streaming giant used to be the golden child of Wall Street. But after falling from $300 per share in the middle of 2010 to as low as $60 per share in 2011, in spite of reporting an overall increase in revenue, the company is reeling.
It is important to understand how stockholders affect you, and how sometimes the numbers can be deceptive. If you do not meet projections, then your company will have less of an infusion of capital as it goes along, because shareholders will be dropping your stock right and left. Furthermore, you can be at the mercy of analysts, who do not like a certain pattern they see in your numbers. On a whim, an analyst can downgrade your stock, and suddenly the millions in shares that are out there are now up for grabs. When you have financial goals this can be crippling for your overall budget. So don’t just assume that because the money is there you will automatically turn a profit.
Furthermore, many web businesses make the mistake of not minding their operating expenses properly. But it’s a web business, how can it be expensive, you may be asking. Web businesses, depending on how aggressive the plans for growth are and the type of industry that one is in, can be quite expensive if one is not careful. When you reach a point that you are big enough for an initial public offering (IPO), you are no longer doing business from your kitchen table. You will require offices and personnel and consultants to help you be a good steward of the stockholder’s money. There is no “going it alone” at this point, and you could end up unprepared for the financial challenges ahead.
Businesses need capital to survive, and the more involved you become with your own company, the more you will realize that it takes money to make money. Don’t just assume that when you’ve sold a million dollars worth of stock, you’re set. The world is an increasingly challenging place to do business, online or otherwise.
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