Aswath Damodaran Valuation, Companies Life Cycle and Technology Companies 2018

(via Ray Grasso)

I’m a sucker for a great model. As the saying goes “all models are wong, but some are useful” and this is definitely a useful model, for me.

The focus of a company needs to change as it moves through the lifecycle: Startups should spend cash in order to grow; Growth companies can offer equity; Mature companies can afford to finance growth through debt; and companies in decline should be looking to return cash to shareholders.

People with vested interests in making off like bandits will tell you they can give your company a face lift, and that you can be young again, but you shouldn’t fight the lifecycle. If you do, you’ll end up destroying whatever value remains.

I also think there’s some interesting connections with an article I linked to recently on why companies stop innovating.