Posted in Finance, Accounting and Economics Terms, Total Reads: 168
Definition: Critical Mass
Critical Mass is the situation at which a business organization overcomes its phase of negative bottomline and becomes profitable. It can now use its own income for its further growth projects. It attains a kind of nirvana in the sense of sustainability and financial viability and it no longer worries about the money problem.
When we look at a business life cycle, there are 4 stages which are Startup, Rapid Growth, Maturity, and Decline. During the startup and Rapid growth phase, a company generally requires huge amounts of money/working capital to help itself grow. While the company cannot sustain on its own profits, it sometimes needs venture money to run itself. After the company has reached a stage maybe at maturity or later stages of rapid growth, the company enables itself to run with its own profits and assets. At this stage the assets including fixed assets, current assets and even human resources are self sustaining. The revenue of the company exceeds its expenses. And the company has no longer to worry about the foreign stake/control in the company by living off on the venture money. Generally it takes many years for a company to achieve critical mass. Now a days many start-ups are running on venture money like Flipkart, Ola, Snapdeal etc. It will take them many years to get settled and run their operations smoothly without any worry for money and resources.
For Example: Dish TV is an Indian company which was established in 2004. The company provides Direct to Home(D2H) services since then. It was listed on the stock exchange in 2007. Since 2004 till 2014, it was under losses. Only in year 2015, the company’s bottomline became positive. The company can run on its own now without any equity injections or borrowings. The worry of sharing the control and money is over. It has come into a sustainable mode now. There is has achieved a Critical Mass.