- KYX
- Posts
- The Distill - Cash Velocity > Margin
The Distill - Cash Velocity > Margin
A series is born
Greeting Pioneers,
Dan is back in founder mode learning lessons. This one, a blast from the past. A re-learn from decades past. Some are wondering if time is in fact a flat circle.
Cash Velocity > Margin
Margin. It’s one of the first metrics founders learn to measure.
“I have 70% margins” - Proud Founder
Cool… but over what time horizon? Because 50% margin over a year and a 50% margin over a week are not the same.
We’re talking about the difference between payback periods, which is not just a boring finance term, but a potentially important part of your scaling strategy.
Margin Is Static. Cash Is Dynamic.
Margin is an accounting snapshot.
You see it in your P&L statement, it’s right there between Gross Revenue and Net Profit. It’s the recurring theme we highlight in any business. However it’s just one shoe for two feet.
Working capital is the other shoe.
Example:
Buy something for $50
Sell it for $100
Congrats - 50% gross margin
But if your cash is tied up for 12 months, you can’t build a business because you turned your capital into concrete.
If instead that same cash turns every 7 days, even at lower margin, you have a cash flywheel.
Radically different businesses.
Founders who ignore this end up “profitable” on paper and broke in real life.
The Velocity Thought Experiment
Let’s run two businesses:
Business A
50% margin
Cash tied up for 12 months
$100k invested → $150k back in a year
Business B
5% margin
Cash turns every week
$100k invested → $105k back every 7 days;
+$260K if you redeploy the same $100K every week without even reinvesting the gains. $360k at the end of a year.
Business B can:
Reinvest faster
Outbid competitors
Survive pricing pressure
Scale without begging for capital
Business A needs patience, debt, or outside money to grow.
Different margin. Different payback period. Different destiny.
A Short Payback Period Can Be A Hidden Moat
It lowers your effective cost of capital
It allows your growth to be self-funded
It punishes slower competitors
It gives you optionality when markets tighten
This is why some “low-margin” businesses dominate entire industries. They’re not winning on margin - they’re winning on turns.
Amazon understood this early. They optimize turnover. PIMCO does this effectively, they realize yields are market efficient so they optimize cash management. McDonalds & Hilton do this through franchising. Airlines through operating leases.
To The Extreme
I’ve had the unique experience in high-frequency trading to see low-margin, high turnover taken to the extreme. When trading, we would turn our portfolio 10-20x a day. That’s right, every 1-2 hours my holdings would recycle.
We ran extremely low margins, very high leverage, often taking just .4% relative to our working capital per cycle. But executing on average 15 cycles a day, that meant 6% per day return on capital. 30% per week, 120% per month.
This was such a niche, that the traditional investing questions did not apply “are you long or short?” - Both, “what’s your return” - depends on turnover.
Why This Matters for Founders
Most founders think startups compete through technological innovation alone, but just as much change happens to the founders who are able to hyper-optimize their working capital.
Those founders who can reduce their payback periods relative to their peers will be at a strategic advantage.
Note’s on The Distill’s co-EICs: Jack Crowdis & Rachel Edenfield
Jack runs the newsletter, helps run KYX. He’s a career startup kid, past founder, and current operator. Weekly contributor. Always editor.
Rachel’s the Founder/CEO of venture-backed Swell, and a driver of KYX. Routinely delivers the city’s sharpest long-form startup advice. Always re-edits Jack’s edits (including this bio).
Know someone who should read this? Forward it, or send them this link.
That’s a wrap 🎬
Keep showing up 👊
Keep shipping 🚢
Peace, Pioneers ✌️