Owners of private companies may not have to pay attention to earnings season, but there's at least one big lesson they can learn from some of the billionaire-run public companies: how to lose money the right way.
A common quarterly complaint from shareholders of public companies is how richly valued success stories like Netflix, Amazon, Salesforce and Tesla can fail to turn a profit. But often, especially in the early days of new companies, losing money is part of the plan.
Some of these companies have the ability to go back to the capital markets for more cash, as Elon Musk has done multiple times. Many of these tech companies also have long-term, institutional shareholders who buy into the CEOs' grand plan and are willing to ride out the ups and downs in quarterly financials.
Amazon, now a mature technology giant but long known for not worrying about short-term financials, last week announced a 77 percent decline in second-quarter profit as it invests heavily in video content and global expansion. There are some advantages the big guys get that don't apply equally to all business ventures, especially outside the tech sector. Few banks are going to give a small business the amount of running room stock investors have given Amazon and Tesla. And private business owners are more likely to be forced into a sale of their own equity than find a way to hold on when times get tough.
But there are good reasons for a healthy business to lose money. It falls under the general theme, especially early on, of investing for the long run. The recent CNBC/SurveyMonkey Small Business Survey found that when asked to cite critical issues, business owners, especially younger ones, put customer demand ahead of any costs. And the youngest subset of owners — those under age 35 — are the most confident about current business conditions. Both private and public sources of capital understand that losing money is a known path to success and will work with promising companies that aren't quite at profitability.
Here are five ways losing money has helped create billionaire empires for the likes of Jeff Bezos and Elon Musk.