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March 25, 2005

Way of Go MBA lesson 5 - Finance basics

Since we already picked on Finance, let's look at one of the first rules of Finance - "a dollar today is worth more than a dollar tomorrow."

This is true if a dollar buys less tomorrow than today, which has been the case for quite some time (although, it's not always true). One of the big measures in finance is the Big Mac (from McDonalds). If you can buy fewer Big Macs in the future with the same dollars you have today, then the rule is true. Looking at historical Big Mac prices can tell you a lot.

Now, let's Way of Go (WOG) this rule. Wog this rule over to Marketing and Operations and modify it slightly. Inventory that you can sell today is worth more than inventory you can sell tomorrow. Mind share that you can gain today is worth more than you can gain tomorrow. Generally true for both, except...

The other rule from WOG is "timing is everything." The question of importance is how much more is that dollar worth. If you have two dollars tomorrow, is that better than a dollar today? If that inventory is sitting because you're driving up demand (Enron! cough cough), isn't that better (not for society, but for profits) than inventory today? If that mind share waits for the product to be available, then isn't that better than mind share for vaporware?

To be continued...

Posted by wayofgo at March 25, 2005 06:33 PM

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