Cause and effect. What rodeo is saying is correct but I think some of you guys are misunderstanding it. Payroll is almost always the biggest expense for a company. That doesn't mean business owners don't like hiring people, it just means they only do it when they have to. Ultimately businesses like hiring people because the demand for their product/service dictates it, and that's a good thing. But they don't like hiring just to hire. The company I work for is a classic small business and we have to fight tooth and nail with the owners to hire people we critically need. And our owner, like any good owner, resists it until it's absolutely necessary(and to be fair, the people we need to hire - developers, DBAs, SAs - are very expensive).
That is not what Rodeo said, although it is nice of you to try to help his rambling business plan out.
You are correct in your business model above which is nothing like the CWG stamped of approval thing we read about earlier.