What is an old economy business model?

At the time of the dot-com boom, we all started differentiating companies as being new-economy vs. old-economy.  The way we thought about these companies was a bit like this:

Old-economy stocks represent large, well-established companies that participate in more traditional industry sectors and have little investment or involvement in the technology industry. In contrast, so-called new-economy stocks are heavily involved in the technology sector and the more successful companies are able to build value at markedly higher growth rates.

But over the last decade, I think that distinction has become a little less stark.  Traditional manufacturing companies have regained some of their edge, and newer technology businesses have started looking a little less exciting.  This is probably more true in India, where technology companies are largely services oriented.

I think that today the way we think about old economy companies is more to do with the mindset of the management team, than the choice of industry. And central to that mindset is an obsession with making money.  Here is my take on how an “old economy” company thinks about money:

Cash is king, queen and knave.  P&L statements are for the birds. What matters is how much cash we generate, and how much of it flows to the owner

Profits are only one driver, and an inefficient one, of cash. After all, one has to pay corporate taxes on profits, and dividend distribution taxes thereafter.

What you don’t pay is yours to keep. An expense ain’t an expense unless you actually pay your supplier.  There are more fish where that one came from.

Tax planning, the (mucho) smarter way. Instead of paying taxes, find ways to take what the government collects from others.  Capturing those subsidies is a great starting point.

No compromises on capital investments. Especially when it flows back to my own, privately held companies.

Debt = Equity – shareholding. What if we don’t pay back the bank?  No, really.