12 ms·

The ‘Oh, Shit’ Moment When Growth Stops

104 points by Rifu 11y ago

danieltillett 11y ago
Dang, shouldn't this be pointed towards the original source? http://recode.net/2015/09/29/the-oh-shit-moment-when-growth-stops/ http://recode.net/2015/09/29/the-oh-shit-moment-when-growth-... Edit. It is interesting that market saturation is not raised as a possible cause.
7Figures2Commas 11y ago
> So, when growth slows or stops, feel free to freak out. Or you could just save yourself the mental angst and build a profitable, sustainable business that doesn't require perpetual growth to keep the wheels from falling off.
- jsprogrammer 11y ago
  If you exit as a $10 billion unicorn, does it matter if the wheels fall off immediately after?
  - idlewords 11y ago
    Why would a unicorn have wheels? I am so confused
    - krapp 11y ago
      Obviously, that's the disruptive feature that makes it worth $10 billion.
    - 7Figures2Commas 11y ago
      Its hind legs have been amputated.
  - danieltillett 11y ago
    Aren’t these called decacorns these days :) It only matters if you have any morality since selling a company to investors for $10 billion when you know the wheels are about to fall off is not exactly the right thing to do.
    - jsprogrammer 11y ago
      I don't assume that you know the wheels are about to fall off, only that it doesn't matter to any decisions made prior to the exit. Assuming a voluntary transaction, it is incumbent upon the investors to perform any due diligence they feel they are entitled to.
      - danieltillett 11y ago
        I would hope as a CEO you would know of something major like the wheels falling off immediately after you exit. If the event was truly unknowable before you exited then you are morally fine, but to knowing exit when you know there are serious issues is not fine.
        jsprogrammer 11y ago
        One would hope. As long as everything is fully disclosed, an investor may purchase without recourse. For example, M. Cuban achieved a $1 billion valuation of a company on $3.1 million in revenue and $2.7 million in net losses. This was transformed into a $5.7 billion exit months later. Yahoo's market cap was then chopped down by about 80% over the next few years.
        danieltillett 11y ago
        There is still a moral duty of care towards non-sophisticated investors. You can make an argument that an investor that buys a company knowing all the risks and who is able to rationally evaluate the risk is responsible for their actions, but many investors are not able to determine the risks involved.
- ams6110 11y ago
  "Sustainable" is a very trendy word these days, but the harsh reality is that in most cases it's not up to you. If your business is profitable it will usually attract competitors, and if they are growing and you are not, you will eventually be crowded out. Wal-mart vs. Mom-n-Pop's General Store, in the extreme case.
  - 7Figures2Commas 11y ago
    Most millionaires in this country are self-employed/small business owners, not VC-backed tech startup founders or early [insert unicorn name] employees. Silicon Valley has convinced many people (you included apparently) that it's virtually impossible to build a business with meaningful and sustainable profits simply because there are competitors or other forces that limit growth and market size. This is simply not true. Hint: you don't need to own every mobile home park in America to be a millionaire several times over.
- technomancy 11y ago
  Consider the source. a16z has a vested interest in there being more startup founders who don't consider/believe this obvious fact.
werqqr23 11y ago
If a business is not growing, but you're paying all the bills and still making money, why is that such a terrifying situation? There are two reasons I can see for this fear. First, investors who are afraid to lose a lot of money that they put into the company. Second, leaders who are afraid to have to lay off a whole bunch of people because that's very painful. Are there other reasons that I'm missing? Seems if you're bootstrapped and hire slowly, it's easier to keep balance in this situation.
- danieltillett 11y ago
  While I agree 100% in the general desirability of bootstrapping and building a profitable business over taking investors money to build a growth machine, you do need to worry if you have taken investors money and have stalled. The investors will get rid of you as the CEO if you are not doing what they want you to do. If your company is not growing at the rate they expect they will find someone else who will be willing to do what they expect.
  - TheOtherHobbes 11y ago
    But their demands may be unreasonable, unrealistic, and perhaps even self-destructively stupid. A number of companies have been killed because the original founders were fired and replaced by a more compliant team - who unfortunately had absolutely no clue how to run that particular business. I'm not a fan of constant growth demands. Companies can fake growth in any number of ways, especially after winning a round. Ultimately it's down to persistent paying customers - not transient customers, and not "users" - and sales/margins. Anything else is PR for potential investors. My conservative view is that it's fine to run a stable, profitable business without spectacular growth. You may get killed by the competition, but you're just as likely to be killed by the politics and finance of over-extending a business without a real case for it.
    - danieltillett 11y ago
      If all you demand is growth then that is what you will get - either real growth or something that looks like growth. Fake growth is none too helpful to anyone.
kylebrown 11y ago
> But if the startup gods aren’t smiling, and you can’t either figure out the cause and/or figure out how to correct it, it’s time to start working on a Plan B for the business. Plan B often includes kicking off a strategic process that ends up in the sale of the company before it becomes as obvious to others as it is to you that you’ve got a dying shark on your hands. That sounds not entirely ethical / honest..
- guessbest 11y ago
  Dead sharks are worth a lot of money in the art world: http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary/dp/0230620590 http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary...
  - TheOtherHobbes 11y ago
    Perhaps a dead unicorn would have been even more noteworthy. The original shark fell apart and had to be replaced, which added an amusing patina of involuntary performance art to that famously iconic work. It's not known if the piece now includes an ongoing shark-replacement maintenance contract.
    - justinator 11y ago
      Yeah, he made one of those, too[0] [0] http://www.damienhirst.com/the-dream http://www.damienhirst.com/the-dream
    - deleted 11y ago
      [deleted]
- cstavish 11y ago
  It's not necessarily about misrepresenting your business to potential acquirers. In many cases, an acquirer may be interesting in a company's IP portfolio or product. Such an acquisition might resemble a liquidation but it's better than nothing.
- duaneb 11y ago
peterburkimsher 11y ago
"Freak out", "Drop everything else", "Involve all the /key/ people", "Search maniacally for underlying causes" (scapegoat), "Assume the situation is self-inflicted", "search ... systematic[ally]", "Divide and conquer", "Consider a Plan B" To my ears, all those phrases sound like "lay people off".
- polakallen 11y ago
  Getting rid of people would (or should) be the last thing on their minds. Reducing cost does not mean increasing growth. If anything, it further damages any chance to recover. Now firing someone clearly and directly responsible for the reduced growth on the other hand...

104 points by Rifu 11y ago

Dang, shouldn't this be pointed towards the original source? http://recode.net/2015/09/29/the-oh-shit-moment-when-growth-stops/ http://recode.net/2015/09/29/the-oh-shit-moment-when-growth-... Edit. It is interesting that market saturation is not raised as a possible cause.

7Figures2Commas 11y ago

> So, when growth slows or stops, feel free to freak out. Or you could just save yourself the mental angst and build a profitable, sustainable business that doesn't require perpetual growth to keep the wheels from falling off.

jsprogrammer 11y ago
If you exit as a $10 billion unicorn, does it matter if the wheels fall off immediately after?
- idlewords 11y ago
  Why would a unicorn have wheels? I am so confused
  - krapp 11y ago
    Obviously, that's the disruptive feature that makes it worth $10 billion.
  - 7Figures2Commas 11y ago
    Its hind legs have been amputated.
- danieltillett 11y ago
  Aren’t these called decacorns these days :) It only matters if you have any morality since selling a company to investors for $10 billion when you know the wheels are about to fall off is not exactly the right thing to do.
  - jsprogrammer 11y ago
    I don't assume that you know the wheels are about to fall off, only that it doesn't matter to any decisions made prior to the exit. Assuming a voluntary transaction, it is incumbent upon the investors to perform any due diligence they feel they are entitled to.
    - danieltillett 11y ago
      I would hope as a CEO you would know of something major like the wheels falling off immediately after you exit. If the event was truly unknowable before you exited then you are morally fine, but to knowing exit when you know there are serious issues is not fine.
      - jsprogrammer 11y ago
        One would hope. As long as everything is fully disclosed, an investor may purchase without recourse. For example, M. Cuban achieved a $1 billion valuation of a company on $3.1 million in revenue and $2.7 million in net losses. This was transformed into a $5.7 billion exit months later. Yahoo's market cap was then chopped down by about 80% over the next few years.
        danieltillett 11y ago
        There is still a moral duty of care towards non-sophisticated investors. You can make an argument that an investor that buys a company knowing all the risks and who is able to rationally evaluate the risk is responsible for their actions, but many investors are not able to determine the risks involved.
ams6110 11y ago
"Sustainable" is a very trendy word these days, but the harsh reality is that in most cases it's not up to you. If your business is profitable it will usually attract competitors, and if they are growing and you are not, you will eventually be crowded out. Wal-mart vs. Mom-n-Pop's General Store, in the extreme case.
- 7Figures2Commas 11y ago
  Most millionaires in this country are self-employed/small business owners, not VC-backed tech startup founders or early [insert unicorn name] employees. Silicon Valley has convinced many people (you included apparently) that it's virtually impossible to build a business with meaningful and sustainable profits simply because there are competitors or other forces that limit growth and market size. This is simply not true. Hint: you don't need to own every mobile home park in America to be a millionaire several times over.
technomancy 11y ago
Consider the source. a16z has a vested interest in there being more startup founders who don't consider/believe this obvious fact.

werqqr23 11y ago

If a business is not growing, but you're paying all the bills and still making money, why is that such a terrifying situation? There are two reasons I can see for this fear. First, investors who are afraid to lose a lot of money that they put into the company. Second, leaders who are afraid to have to lay off a whole bunch of people because that's very painful. Are there other reasons that I'm missing? Seems if you're bootstrapped and hire slowly, it's easier to keep balance in this situation.

danieltillett 11y ago
While I agree 100% in the general desirability of bootstrapping and building a profitable business over taking investors money to build a growth machine, you do need to worry if you have taken investors money and have stalled. The investors will get rid of you as the CEO if you are not doing what they want you to do. If your company is not growing at the rate they expect they will find someone else who will be willing to do what they expect.
- TheOtherHobbes 11y ago
  But their demands may be unreasonable, unrealistic, and perhaps even self-destructively stupid. A number of companies have been killed because the original founders were fired and replaced by a more compliant team - who unfortunately had absolutely no clue how to run that particular business. I'm not a fan of constant growth demands. Companies can fake growth in any number of ways, especially after winning a round. Ultimately it's down to persistent paying customers - not transient customers, and not "users" - and sales/margins. Anything else is PR for potential investors. My conservative view is that it's fine to run a stable, profitable business without spectacular growth. You may get killed by the competition, but you're just as likely to be killed by the politics and finance of over-extending a business without a real case for it.
  - danieltillett 11y ago
    If all you demand is growth then that is what you will get - either real growth or something that looks like growth. Fake growth is none too helpful to anyone.

kylebrown 11y ago

> But if the startup gods aren’t smiling, and you can’t either figure out the cause and/or figure out how to correct it, it’s time to start working on a Plan B for the business. Plan B often includes kicking off a strategic process that ends up in the sale of the company before it becomes as obvious to others as it is to you that you’ve got a dying shark on your hands. That sounds not entirely ethical / honest..

guessbest 11y ago
Dead sharks are worth a lot of money in the art world: http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary/dp/0230620590 http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary...
- TheOtherHobbes 11y ago
  Perhaps a dead unicorn would have been even more noteworthy. The original shark fell apart and had to be replaced, which added an amusing patina of involuntary performance art to that famously iconic work. It's not known if the piece now includes an ongoing shark-replacement maintenance contract.
  - justinator 11y ago
    Yeah, he made one of those, too[0] [0] http://www.damienhirst.com/the-dream http://www.damienhirst.com/the-dream
  - deleted 11y ago
    [deleted]
cstavish 11y ago
It's not necessarily about misrepresenting your business to potential acquirers. In many cases, an acquirer may be interesting in a company's IP portfolio or product. Such an acquisition might resemble a liquidation but it's better than nothing.
duaneb 11y ago

peterburkimsher 11y ago

"Freak out", "Drop everything else", "Involve all the /key/ people", "Search maniacally for underlying causes" (scapegoat), "Assume the situation is self-inflicted", "search ... systematic[ally]", "Divide and conquer", "Consider a Plan B" To my ears, all those phrases sound like "lay people off".

polakallen 11y ago
Getting rid of people would (or should) be the last thing on their minds. Reducing cost does not mean increasing growth. If anything, it further damages any chance to recover. Now firing someone clearly and directly responsible for the reduced growth on the other hand...