16. Sustainability is success

May 01, 2026 03:32 · 5:05 · English · Whisper Turbo · 2 speakers

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Lecture Index

0:13

S… Speaker 2 (16. Sustainability is success)

When it comes to analyzing your business's financial information and getting great optics, few things are a better predictor of the financial health and sustainability of your business than the percentage growth rate of your assets compared to the percentage growth rate of your revenue. And the percentage growth rate of your revenue compared to the percentage growth rate of your profits.

0:42

S… Speaker 1 (16. Sustainability is success)

and the percentage growth rate of your profits compared to the percentage growth rate of your operating cash flow. You don't want, on a percentage basis, you don't want assets growing faster than your revenue. If that happens, your assets are becoming less and less effective.

1:04

S… Speaker 1 (16. Sustainability is success)

You don't want your revenue on a percentage basis. You don't want your revenue growing faster than your profits. When this happens, your revenue is becoming less and less efficient. And you don't want your profits on a percentage basis. You don't want your profits growing faster than your operating cash flow.

1:28

S… Speaker 1 (16. Sustainability is success)

When your profits are growing faster than your operating cash flow, your profits are becoming less and less productive. Having said this, obviously there could be short bursts where one of the above scenarios occurs, but any of these trends over the long term is deadly. In a well-run business, you want to cascade your percentage growth rates so that,

1:59

S… Speaker 1 (16. Sustainability is success)

Operating cash flow is growing faster than profits, and profits are growing faster than revenue, and revenue is growing faster than assets. Now, when I say assets, I'm talking about regardless of whether those assets are buildings or machinery or people. As an example, we'd like to have our assets remain constant, but have our revenue grow by 10%.

2:26

S… Speaker 2 (16. Sustainability is success)

and our profits grow by 20%, and our cash flow grow by 30%. That's a well-run business. A poorly run business would be where assets grow by 50%, but revenue only grows by 10%, and then profits only grow by 2%, leaving operating cash flow to stagnate or even worse, decrease.

2:52

S… Speaker 2 (16. Sustainability is success)

As business owners, we want to have as few assets as possible producing the maximum amount of revenue. Look, if I have $1,000 of assets and I'm selling gourmet coffee beans, I'd like to produce $5,000 of revenue. But if I could produce $6,000 or $10,000 of revenue on that same $1,000 of assets, that'd even be better.

3:21

S… Speaker 1 (16. Sustainability is success)

I want the greatest amount of revenue for the assets that I have. And this is true regardless of whether I'm talking about physical assets on the balance sheet or number of employees or payroll dollar assets. Where business owners get into trouble is when they buy a $4,000 piece of equipment when the $1,000 model would have been more than sufficient.

3:46

S… Speaker 2 (16. Sustainability is success)

At the end of the day, we want to minimize the monetary amount of assets required to produce the maximum amount of revenue. Once we have that revenue, we want to minimize our expenses and maximize our profits. Finally, we want to maximize the cash that our profits produce. The equation looks like this.

4:10

S… Speaker 1 (16. Sustainability is success)

Assets into sales, that's a measure of how effective you are. Sales into profits, that's a measure of how efficient you are. And profits into cash flow, that's a measure of how productive you are. This little sequence is the blueprint of an insanely successful business. It's our job as owners and management.

4:35

S… Speaker 1 (16. Sustainability is success)

to be on a never-ending quest to become more effective, more efficient, more productive. Measuring and managing the percentage growth rates of our assets, revenue, profits, and cash flow is critical to creating a sustainable business.

This transcript was generated by AI (automatic speech recognition). May contain errors — verify against the original audio for critical use. AI policy

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