Working Wounded Blog: Earned Money or Found Money?

Sept. 26, 2007 — -- OK, last week was good for my portfolio. And except for all you bears and shortsellers out there, it was probably good for yours too.

Far be it from me, especially after the turbulence of the last few months in the stock market, to rain on anyone's parade. Then again, I'm a columnist, so rainmaking is part of my DNA and job description.

Here is my question: Did we "earn" the stock market gains of this past week or were they based on a unique, and mostly unrepeatable, set of circumstances? This is a very important workplace question because it potentially casts a big shadow over your portfolio. But it's also a question that has ramifications back where you work, not just for your investments.

As always, let me tell you a story to illustrate this distinction.

A number of years ago, I was running a startup. We had a small and uncertain revenue stream, so I kept things small, very small. One-person small. But our trend line looked good and we were poised for growth. (You'll notice that even as a one-person shop, we never use "I" or "me." Welcome to the land of trying to look bigger than you are, otherwise known as entrepreneurship 101.)

We negotiated a big contract with a publisher to create a series of instructional videotapes. After trading exclusive distribution rights to an existing award-winning video, they gave us a lucrative six-figure deal, which was roughly double the money that we needed to actually create the new videos.

So we did what any good capitalist would do with a bulging bank account. We hired new staff. Two and a half, to be exact.

A year later, we learned an important lesson, just before I laid off all the staff. Not all revenue is the same. There is revenue that is ongoing as a result of operations, aka the good kind. Then there are one-time cash flows that aren't replicable. This other kind of money isn't evil, heck it's still green. It's only a problem when you confuse it with the ongoing type.