Why Can Some Companies Survive Years Without Profit
What do you do if you’re not making money for six months straight? Usually, the outcome for beginners is bankruptcy. But why can a businessperson with years of experience keep a company afloat even without profits for two or three years?
Let’s say on a certain street, you open a milk tea shop, and he opens one right next to it. He sets his prices based on the calculation that you’ll lose money for half a year and then fold. He’s already figured out that below a certain price point, you’ll lose customers. If you want to attract them, you’ll have to operate at a loss. Either way, you’re forced out.
After six months, you’re gone.
But here’s the thing: the boss behind the internet cafe and game厅 next to his milk tea shop is the same guy. He’s giving away free milk tea with every game session. That means customers who play games here get coupons for the milk tea next door, so his drinks are always cheaper than yours.
He’s using the game厅 to subsidize the milk tea shop, while you’re selling your parents’ house to keep yours going. Once you’re squeezed out, he starts raising prices. After all, gamers won’t go out of their way to walk an extra block just to buy a cup of milk tea.
The losses he sustained along the way will be made back tenfold.