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I thought banks, resource companies and actual manufacturing were usually profitable. While most tech lived on VC money, at least when you look at the Bay Area.

by seivan 11y ago

I thought banks, resource companies and actual manufacturing were usually profitable. While most tech lived on VC money, at least when you look at the Bay Area. What am I missing here? Every time I read about this stuff I always get the impression that tech is this abstract thing that barely makes profit and lives on investments while "traditional" businesses lives on selling actual things that creates profit. Which is why I'm neurotically nervous over an impending tech crash when the dust settles and App Startup X, Y and Z will probably never be profitable with current tech salaries.

HorizonXP 11y ago
All of those profitable companies were once unprofitable. They got their start from some sort of initial investment, whether it was investors, family, or just taking an existing profitable business and morphing it. Most startups in the tech sector are exactly as you describe. And that's the point. Eventually, one of those startups finds something that can turn a profit. They build something that people want and are able to push on a few levers and ramp up profitability. Apple, Google, Facebook, and many more, started out as small startups that barely made profit and lived on investments. Eventually, they got their shit together and became some of the world's largest companies. However, most startups that existed at the same time as them, heck, may have even had similar ideas as them, crashed and burned. That's the nature of venture capital. Throw a bunch of money at a bunch of ideas and see what sticks. And if you think that's a very haphazard way of investing, you're right, it is. But as a percentage of total investments made by many funds, VC funding is a very minor portion, so they can somewhat afford to make these bets (and lose).
- seivan 11y ago
  Yeah but usually those "traditional" business have something more concrete to invest in e.g transportation, inventory, manufacturing or buying shelf space. I imagine if "SnapChat" blows up, they won't need to hire the engineers GameApp0, FoodApp1, CarApp2 let go. It doesn't really need to scale like a "traditional" factory. I get what you're saying, and I am not arguing against your points. I am just trying to get clarification if I'm worried for no reason. The salaries are high because so many startups live on credit. Eventually they die and the supply is higher than the demand.
  - HorizonXP 11y ago
    I wouldn't say you're worried for no reason, but software is an outlier: it requires very little equipment to build. You could literally write software anywhere in the world as long as you have a computer, and as a byproduct, an Internet connection. If you're sufficiently motivated, you'll always be able to find work, either as an employee, or as an independent consultant.

by seivan 11y ago

HorizonXP 11y ago

All of those profitable companies were once unprofitable. They got their start from some sort of initial investment, whether it was investors, family, or just taking an existing profitable business and morphing it. Most startups in the tech sector are exactly as you describe. And that's the point. Eventually, one of those startups finds something that can turn a profit. They build something that people want and are able to push on a few levers and ramp up profitability. Apple, Google, Facebook, and many more, started out as small startups that barely made profit and lived on investments. Eventually, they got their shit together and became some of the world's largest companies. However, most startups that existed at the same time as them, heck, may have even had similar ideas as them, crashed and burned. That's the nature of venture capital. Throw a bunch of money at a bunch of ideas and see what sticks. And if you think that's a very haphazard way of investing, you're right, it is. But as a percentage of total investments made by many funds, VC funding is a very minor portion, so they can somewhat afford to make these bets (and lose).

seivan 11y ago
Yeah but usually those "traditional" business have something more concrete to invest in e.g transportation, inventory, manufacturing or buying shelf space. I imagine if "SnapChat" blows up, they won't need to hire the engineers GameApp0, FoodApp1, CarApp2 let go. It doesn't really need to scale like a "traditional" factory. I get what you're saying, and I am not arguing against your points. I am just trying to get clarification if I'm worried for no reason. The salaries are high because so many startups live on credit. Eventually they die and the supply is higher than the demand.
- HorizonXP 11y ago
  I wouldn't say you're worried for no reason, but software is an outlier: it requires very little equipment to build. You could literally write software anywhere in the world as long as you have a computer, and as a byproduct, an Internet connection. If you're sufficiently motivated, you'll always be able to find work, either as an employee, or as an independent consultant.