Business Risk

A pretty standard rule of thumb in business is that you WILL lose money for at least the first two years. To get beyond breaking even, you're generally looking in the three to four year range. And that's after you've spent however much time ramping things up to begin with; those timeframes are after you open the (sometimes metaphorical) front door.

That means that, if you're starting a new business, you need to have enough cash on hand when you start to keep things running for several years, assuming you have zero income. Or maybe not on hand directly, but at least have access to that level of cash. Because your business will not generate enough to be self-sustaining for the first couple years. Almost one fifth of all business startups fail in the first year, and half within the first five years. And while having enough cash isn't necessarily the only reason for this, it is a significant factor. Estimates put a lack of cash flow as the primary cause of business failures in about 80% of cases in that initial five year period.

Keep in mind that all of these numbers are averages. Which means that, yes, some businesses will hit a break even point inside a couple months and will be making money hand over first before their first year. But also many businesses could go well more than five years without turning a profit. Amazon famously did not see a profitable quarter until 2001, a little over six years after their site first launched. (Admittedly, there's no doubt some accounting nonsense that could've gone on, so they might've been considered "profitable" by different metrics earlier, but I don't think they could've moved numbers around enough that they could've been considered profitable by anyone's defintion after only two years.)

I say all this in response to the news of Omnibus announcing that it's shuttering its doors after about a year and a half. Not to say that founders Kenny Meyers and Travis Schmeisser were reckless in launching it without enough money to keep them going longer. As is rightfully pointed out in this piece about the news from The Beat, they were trying to take advantage of something of a vaccuum left by Comixology, who had largely had a stranglehold on the digital comics market up until then. But if they wanted to take advantage of that opening, they had to move quickly... which means less time to secure longer term funding and/or build up cash reserves. Had they spent more time making sure they had more than 18 months of cash, there might have been another one or five or ten competitors that tried to step into the market. After all, much of Comixology's early success came from them being in a market with effectively no competition.

But that, ultimately, is what business in general boils down to: weighing the pros and cons of the conditions in front of you, and judging whether the potential rewards are worth the risk. Would Omnibus beat the averages and start making a profit earlier than most places? Or would making sure they had enough funds to out-perform an 'average' business survival rate take so much time that their window of opportunity closed? It's literally impossible to predict with any accuracy, but that's precisely why any and every new business venture is a risky one.

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