Amazon is a favorite example of mine when it comes to explaining the digital economy to a skeptical audience. A key feature of Amazon’s business model is how it uses its cash flow to finance its radical innovation, which in turn enables Amazon to keep on growing and generate even more cash flow. The graph below is an attempt at explaining it all.
This point usually provokes pushback. How can Amazon generate such a high level of cash flow? Well, it’s because of their negative cash conversion cycle and their impressive growth. And won’t Amazon be forced to slow its growth at some point?