Break the Rules!

5How Entrepreneurs Get Things Done with Almost No Money: Ask for the Cash, Ride the Float

 

These days, many large, listed companies have so much cash on hand that they don't really know what to do with it. In many cases, the best use of it seems to be to buy back shares of their own stock from their shareholders, thereby reducing the number of shares outstanding and thereby magically increasing their company's earnings per share and, it is hoped, the share price, not to mention their own senior executives' fortunes.¹ Indeed, in 2018, Merck, the large pharmaceutical maker, spent $10 billion on research and development but a whopping $14 billion on share buy‐backs and dividends.²

When a company is not strapped for cash, as many large companies are not, it is perhaps not surprising that managers making the everyday decisions in the trenches don't have to worry much about cash. Managing cash as if it's the last euro, dollar, pound, or rupee they've got simply isn't on their agendas. Further, those who are on bonus plans in large companies are typically incentivized on sales revenue, profits, or profit margins or earnings per share, not on cash on the balance sheet.

“Accompanying this conventional thinking is an implicit assumption that doing something new requires new investment.”

Accompanying this conventional thinking is an implicit assumption that doing something new requires ...