A company like Joann's still need to service debt, salaries, inventory, maintainance, etc.

If revenue remains flat or grows at a lower rate than COGS, then you need an influx of capital to manage this.

But this is a bum deal in a lot of cases.

> A company like Joann's still need to service debt, salaries, inventory, maintainance, etc.

So does the locally owned yarn store, which does it without being in your 401k.

1. Smaller Inventory - reduces supply chain complexity along with the need for full fledged ERP integrations

2. Leasing storefronts - Retail Chains and Big Box brands tend to try to take ownership of the property the store is located on, because at their scale it can have potential savings benefits in the medium-to-long term

3. Family as employees - this reduces the impact of salaries, because profit, customer experience, and employee performance are all directly aligned with each other

4. Relationship-based Sales - your local business will maintain relationships with other local businesses, and be flexible with their own needs as well. That boutique's payment is delayed? No big deal, we'll sell you fabric on credit and you can pay us back when you are able to.

5. Smaller scale - you don't need a $100m influx of capital if you are a single or couple local stores. Mo money, mo problems (and a major reason why several unicorns have stayed private over an extended period even before the IPO window shut)

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There are plenty of difficulties when managing a small business as well, but they are different from those that a Joann's might face.

It must be possible to manage a company in a sustainable way where constant influx of capital is not necessary. In fact the vast majority of companies must be run that way because they don’t have access to large amounts of capital, no?

> It must be possible to manage a company in a sustainable way where constant influx of capital is not necessary

It absolutely is! It's called being "Free Cash Flow" (FCF) Positive - ie a business generates more cash from operations compared to capital expenditures.

Sadly, not all businesses can become FCF Positive - especially if they are heavily leveraged, have significant liabilities, or don't care for optimizing for FCF at the expense of expanding market share or growth.

FCF Positive has become the primary indicator for business health over the past 2-3 years, whereas before the primary metric was market share growth, but it is very difficult to retool or drastically change a business.

More fundamentally, a company like Joann's is dealing with a relatively crowded market (Michaels, Hobby Lobby, resurgence of boutique craft shops), and something has to let go.

I guess the lesson here is that a leveraged growth strategy is a one way journey.

You can succeed with a leveraged growth strategy, such as Nike. A strategy is a tool - it works good in some cases and less well in other cases

I meant one-way in the sense of "one-way decision". If you don't succeed, it's very hard to go back.

It doesnt need growth, but it needs returns. Outside of stock offerings, companies dont see a dime when you buy stock.

If stock price is too low, than the company is worth more dead than alive.

The hypothetical here is a Joann’s that never went public, not a Joann’s that is already far down the “we exist to grow” strategy road.

Why would that be the hypothetical? The people that made Joann are the ones who decided to make it a publicly listed business, all the way back in 1969.

https://www.cleveland.com/pdextra/2010/12/the_history_of_jo-...

notcancer stated:

>Call me old-fashioned, but maybe craft stores don't need infinite double-digit growth.

Craft stores don't need double digit growth (returns is more accurate than growth), but Joann did because Joann's owners decided they wanted to try to expand their business, and probably their own wealth, and so they tapped the public equity markets.

People seem to be upset that business owners desire to bet for bigger returns, but isn't that the business owners' right? A lot of times, it doesn't work out, or it eventually doesn't work out. But what is the alternative?

As a reminder, the question was “why does a craft store need double-digit growth?” And the answer is “it doesn’t, until the owners make a big enough bet that it’s unrecoverable if they fail”.

In Joann's case, they were competing with Michaels and Hobby Lobby, nor were they that differentiated from Michaels.

State ownership of business or heavy restrictions on the ability of owners to sell, dissolve, for take risks with business they own.

I don't agree, but that seems like the clear alternative.

Some people might propose preventing debt backed private equity firms from defrauding investors, but those laws are already on the books. The banks that fund buyouts and sometimes get left holding the bag absolutely know the risks and have well funded legal teams capable of protecting them.

Consumers don't get a say because they are not actual equity owners things like securing access to yarn or all you can eat shrimp do not supersede property rights in the view of the government.

> State ownership of business

Until they either collapse (LGFVs in China) or severely degrade in user quality (Air India), and it's the taxpayers on the hook.

> heavy restrictions on the ability of owners to sell, dissolve, for take risks with business they own

Then there's no incentive to start or scale a business, for example why business incorporation in Switzerland is preferred over France despite similar/same culture, but easier ability to incorporate, sell, or shut down businesses

> Consumers don't get a say because they are not actual equity owners things like securing access to yarn or all you can eat shrimp do not supersede property rights in the view of the government

I can still go to Michael's, Hobby Lobby, or my local crafts shop to buy the same products.

This should be clear from my post, but you are preaching to the choir. In my opinion, if someone wants to gut their business, that is their choice. If someone doesn't like the options, they should start a competitor.

basing a system on the idea that consumers shouldn't have to shop or businesses can never fail leads to all sorts perverse outcomes.

I fundamentally agree that companies don't need to grow. They do however need to have returns.

Companies need returns to justify their continued existence to owners.

Growth comes into the picture because if someone thinks growth is possible, they are willing to pay more for it then an owner thinks it's worth.

This is an extremely common PE situation, where a management firm and Banks think more profit could be generated then the current owner. Then they offer more money than the owner thinks it's worth and try their luck. Sometimes it works out, and sometimes it doesn't.

The other common case is when PE act a buyer of last resort. If someone doesn't want to run a business anymore, they look for a buyer.