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@sama: right on with this. SV $ metrics are always measured in revenue growth, not free cashflow, margin, etc. Measuring revenue works fine for high-margin busi

@sama: right on with this. SV $ metrics are always measured in revenue growth, not free cashflow, margin, etc. Measuring revenue works fine for high-margin businesses, which software has been for a long time. Now that we're using VC to finance resource-intensive SaaS companies (e.g. analytics) and even cleaning/home care/service companies, there's a need for collectively higher financial sophistication. Revenue growth is a good proxy when you're selling zero-marginal cost products; not so when you're selling 95 cents of cost for $1.

kansface 11y ago
It seems like VCs ought to be more sophisticated than to naively apply the model for SaaS to low margin consumer facing products, but I don't know enough - this really could be the case. Similarly, I have no understanding of all the money that flows into the space (from the outside). The margins are low (to non-existent) and the space is brutally punishing. Screw up a persons laundry, food order, or plain just take too long and you have to give away a year's worth of margins to keep the customer. Delivery as a service is a commodity - who cares who delivers your food or does your laundry? At the same time, the cost of switching between providers is as close to zero as it gets (they are doing home delivery after all!). In the parallel universe that is SF, VCs subsidized (thanks!) the industry to the tune of making it comparable (or actually cheaper) in price for me to pay someone to pick up my laundry, wash and fold it, and return it, to doing it myself at a coin operated laundromat. Whenever the service I used raised prices to stop hemorrhaging money, I simply switched to their latest VC funded competitor.
- S4M 11y ago
  I think you explained very well why HomeJoy failed this summer.
Pxtl 11y ago
Well, a "per-user" cost growth-model might work. That is, your business follows the Uber model of geeks on top and "contractors" at the bottom. You can ignore everything other than the contractors with the assumption that you'll outgrow them or optimize them into negligible levels, but you accept he contractor cost in your big "growth curve" pitch.
RyanZAG 11y ago
The idea behind 'only revenue growth matters' is that if you have an exponential growth curve then the actual numbers don't matter as long as they are positive. If you're making tiny margins on every $1 of revenue then you'll still be a billion dollar profit business quite quickly if you grow that revenue by 100% every week. $100 sales and $1 profit this week? No problem, wait awhile and soon it's $1 billion profit off of $100 billion revenue. Whether this model is realistic is obviously very much up for debate. Just because you grow 100% for the last 50 weeks says nothing about what will happen on week 51 when the easy source of growth is gone but your burn rate has to increase further to keep afloat... Of course, with scale you might be now making $2 off every $100 and your profit is now growing enough anyway? Either way, using any single number as a proxy (or even complex finance without understanding the operating market) is never going to give you a perfect picture of anything.

kansface 11y ago

It seems like VCs ought to be more sophisticated than to naively apply the model for SaaS to low margin consumer facing products, but I don't know enough - this really could be the case. Similarly, I have no understanding of all the money that flows into the space (from the outside). The margins are low (to non-existent) and the space is brutally punishing. Screw up a persons laundry, food order, or plain just take too long and you have to give away a year's worth of margins to keep the customer. Delivery as a service is a commodity - who cares who delivers your food or does your laundry? At the same time, the cost of switching between providers is as close to zero as it gets (they are doing home delivery after all!). In the parallel universe that is SF, VCs subsidized (thanks!) the industry to the tune of making it comparable (or actually cheaper) in price for me to pay someone to pick up my laundry, wash and fold it, and return it, to doing it myself at a coin operated laundromat. Whenever the service I used raised prices to stop hemorrhaging money, I simply switched to their latest VC funded competitor.

S4M 11y ago
I think you explained very well why HomeJoy failed this summer.

Pxtl 11y ago

Well, a "per-user" cost growth-model might work. That is, your business follows the Uber model of geeks on top and "contractors" at the bottom. You can ignore everything other than the contractors with the assumption that you'll outgrow them or optimize them into negligible levels, but you accept he contractor cost in your big "growth curve" pitch.

RyanZAG 11y ago

The idea behind 'only revenue growth matters' is that if you have an exponential growth curve then the actual numbers don't matter as long as they are positive. If you're making tiny margins on every $1 of revenue then you'll still be a billion dollar profit business quite quickly if you grow that revenue by 100% every week. $100 sales and $1 profit this week? No problem, wait awhile and soon it's $1 billion profit off of $100 billion revenue. Whether this model is realistic is obviously very much up for debate. Just because you grow 100% for the last 50 weeks says nothing about what will happen on week 51 when the easy source of growth is gone but your burn rate has to increase further to keep afloat... Of course, with scale you might be now making $2 off every $100 and your profit is now growing enough anyway? Either way, using any single number as a proxy (or even complex finance without understanding the operating market) is never going to give you a perfect picture of anything.