A great idea for a new business
Entrepreneur: I’ve got a great idea for a new business.
Sceptic: OK, let’s have it?
Entrepreneur: Provide interest free loans to the millions who live paycheque topaycheque.
Sceptic: How can you profit from lending money to no-hopers?
Entrepreneur: Instead of interest we charge account-keeping fees, late payment feesand default fees. Plus we charge the merchant/retailer a commission of 3 to 9percent.
Sceptic: So the merchant must charge higher prices to cover the commission.
Entrepreneur: Exactly, so it’s a win-win situation. The buyer is attracted to theinterest free aspect of the deal while the retailer gets a cash sale withouthaving to negotiate a discount for cash.
Sceptic: Yeah, it just might work, but will it profitable?
Entrepreneur: The business itself doesn’t have to be profitable. We attract peopleto buy the company’s stock based on the concept of growth. The annual increase innew customers and gross revenue will in itself cause people to liken us toAmazon that lost money year after year during its establishment stage.
Sceptic: But Amazon is an entirely different business that had a legitimatereason for the disproportionate costs incurred during its establishment.
Entrepreneur: True, but remember, we are dealing with people who lack business savvy.
Sceptic: How do you make money from a loss-making business?
Entrepreneur: A business doesn’t have to be profitable for the directors to becomerich. As long as we show exceptional growth the share price will escalate, so theshareholders will give us whatever we ask for, free founder shares, big salaries, bonuses, options etc.
Five years later
Sceptic: While mounting losses suggest that your business idea was noteconomically viable, how have you made out personally?
Entrepreneur: Like a bandit dear boy, a very rich bandit. Acouple of years ago another director and myself sold ten percent of our stock intoa new capital raising for 100 mill and today my remaining stock and options areworth hundreds of millions of dollars. How about yourself, how have you madeout?
Sceptic:Yes, well, pretty averageI guess. Should have listened to you and bought the perception.
