Lead Time
Categories: Company Management, Financial Theory
"How long before you can make these 87 jet engines for us?" said Boeing to Rolls Royce. (Yes, one was a spare.)
The lead time to make a jet engine is massive. Like...years. With an "s." Lead time to make a baby? Well, about 9 months if you don't include the courtin'. Lead time to make an edible kernel of corn in the summer? Eh, about 3 months. Lead time to make an amazing and bold California cabernet? A decade or two.
Lead times matter enormously in business, in part because they abrogate competition. You can't just one day decide to enter the jet engine building business. You need massive capital. All kinds of regulatory clearance. And customers. And when things cost a lot way in advance of recouping sales revenues from selling them...just the cost of capital ends up being an enormous price tag in the process.
See: Compound Interest. See: WACC.