4 ms·

I think the startup world has become somewhat of a fork of how real companies should be built. Over the last few years companies have been investing into "scali

by arielm 11y ago

I think the startup world has become somewhat of a fork of how real companies should be built. Over the last few years companies have been investing into "scaling" and getting traction with no real revenue to substantiate any of the growth. That to me is backwards, and why those startups are fearing for their lives now. Companies should be built with revenue (and profit) in mind, and in most cases those are the ones that thrive and succeed.

c0l0 11y ago
That's exactly how the financial markets/businesses have become somewhat of a fork of how "real" markets/businesses should work over the last two or so decades. I've always perceived startups to be some kind of an extension of these (highly questionable) concepts and principles into the tech space. These days, it sems we're drawing closer to witness a clash of this weird, bubbly universe of its own with the real world as it were. The only real questions about it, I think, are: when _exactly_ will it happen, and what will the fallout look like?
bkjelden 11y ago
Scaling without revenue makes sense if you're in an industry with strong network externalities or large economies of scale. In those cases, expensive customer acquisition is okay because customers have a very high lifetime value. During the "unicorn boom", I think we all had this belief that network externalities were very common in tech - a belief driven by the rise of facebook, google, and others. But now we're realizing that maybe strong network externalities are just as rare in tech as they are in other industries - and a business without network effects that's losing money for growth is just a business that loses a lot of money. This NYT article from last week seemed to do a good job summing up the issue: http://www.nytimes.com/2016/02/13/business/dealbook/the-rise-and-fall-of-the-unicorn.html http://www.nytimes.com/2016/02/13/business/dealbook/the-rise...
- drmcninjaturtle 11y ago
  Great points. I would add that during the "unicorn boom", we also had the belief that proprietary tech would protect the market position of a large, low-profit companies, giving them time to monetize. It now seems that we may have overvalued this effect. In fact, startups can grow quickly because new tech makes the first mover advantage tenuous; why should the effect that allowed us to climb the mountain now prevent others from doing the same?
- sbov 11y ago
  How can you calculate lifetime value without revenue?
  - rhino369 11y ago
    Estimated revenue for the future. It's really tough, but even using revenue for a start up is very tough. Your growth rate is essentially estimating future revenue.
- twic 11y ago
  So how common have network externalities that affect revenue turned out to be? The classic Metcalfe's law stuff means that a messaging service or marketplace with more people is more attractive to users than one with fewer, but not that those users will spend significantly more money or time on it. Certainly not linearly more. How does the number of Uber cars in a city affect the frequency with which passengers use them? And how many network externalities are there that don't rest on advertising dollars?

by arielm 11y ago

c0l0 11y ago

That's exactly how the financial markets/businesses have become somewhat of a fork of how "real" markets/businesses should work over the last two or so decades. I've always perceived startups to be some kind of an extension of these (highly questionable) concepts and principles into the tech space. These days, it sems we're drawing closer to witness a clash of this weird, bubbly universe of its own with the real world as it were. The only real questions about it, I think, are: when _exactly_ will it happen, and what will the fallout look like?

bkjelden 11y ago

Scaling without revenue makes sense if you're in an industry with strong network externalities or large economies of scale. In those cases, expensive customer acquisition is okay because customers have a very high lifetime value. During the "unicorn boom", I think we all had this belief that network externalities were very common in tech - a belief driven by the rise of facebook, google, and others. But now we're realizing that maybe strong network externalities are just as rare in tech as they are in other industries - and a business without network effects that's losing money for growth is just a business that loses a lot of money. This NYT article from last week seemed to do a good job summing up the issue: http://www.nytimes.com/2016/02/13/business/dealbook/the-rise-and-fall-of-the-unicorn.html http://www.nytimes.com/2016/02/13/business/dealbook/the-rise...

drmcninjaturtle 11y ago
Great points. I would add that during the "unicorn boom", we also had the belief that proprietary tech would protect the market position of a large, low-profit companies, giving them time to monetize. It now seems that we may have overvalued this effect. In fact, startups can grow quickly because new tech makes the first mover advantage tenuous; why should the effect that allowed us to climb the mountain now prevent others from doing the same?
sbov 11y ago
How can you calculate lifetime value without revenue?
- rhino369 11y ago
  Estimated revenue for the future. It's really tough, but even using revenue for a start up is very tough. Your growth rate is essentially estimating future revenue.
twic 11y ago
So how common have network externalities that affect revenue turned out to be? The classic Metcalfe's law stuff means that a messaging service or marketplace with more people is more attractive to users than one with fewer, but not that those users will spend significantly more money or time on it. Certainly not linearly more. How does the number of Uber cars in a city affect the frequency with which passengers use them? And how many network externalities are there that don't rest on advertising dollars?