5 ms·

A big company that is profitable is invariably found to have evolved from a small company that was profitable. A big company created from scratch is never profi

A big company that is profitable is invariably found to have evolved from a small company that was profitable. A big company created from scratch is never profitable and cannot be patched up to become profitable. You have to start over with a profitable small company. With apologies to John Gall ;) I feel there's some truth to it.

beambot 10y ago
Amazon?
- Androider 10y ago
  Amazon is one of the most frugal companies I know, penny-pinching is built into their DNA and one of the reasons IMO they're not a pleasant place to work. Amazon actively chooses to invest every cent they make into expansion (with great results) instead of hoarding profit. That's a huge difference to most companies mentioned in the article that essentially sell $10 bills on the street corner for $9: "Oh, another flyer for a free meal delivery service, why thank you VC-man for paying for my lunch once again. No, I will not ever pay for your service."
  - nickpsecurity 10y ago
    You hit the nail on the head. I've always thought ofvthem as a more diverse and digital Walmart. Bezos wasn't coasting on a nice stream of profit: he was building an empire.
  - adevine 10y ago
    But the point is that at the very beginning of their company, Amazon was most definitely NOT profitable. They took in a huge amount of investment money to be able to grow their business quickly - exactly what all these other companies are trying to do.
    - ksherlock 10y ago
      Amazon used to (circa 2000) report pro-forma (non GAAP) profit/losses.
- deleted 10y ago
  [deleted]
actsasbuffoon 10y ago
It's been too long since I thought about that book! It's packed with with great stuff, even though the name incorrectly gives the impression that it'll be fluffy and light on content: https://en.wikipedia.org/wiki/Systemantics https://en.wikipedia.org/wiki/Systemantics
mkagenius 10y ago
> A big company created from scratch is never profitable and cannot be patched up to become profitable. You have to start over with a profitable small company Is this true? You mean you are sure Uber will never get profitable?
JoshTriplett 10y ago
What would "A big company created from scratch" even mean? With the exception of a spin-out from an existing large company (which can arguably still count the history of that company back to its formation), under what circumstances is a company "big" when initially created, rather than starting small and subsequently becoming big (quickly or slowly)?
ChemicalWarfare 10y ago
There are plenty of examples of large companies losing money, getting acquired by other companies and getting turned around to be profitable. Sometimes (not always) the acquired company goes through downsizing led by the new owner before it starts turning profit. Very often this is more of a restructuring move by the new company as the acquired company can in some cases outgrow it's pre-acquisition size. Happens in automotive business all the time with higher-tier companies acquiring their own struggling suppliers.
galistoca 10y ago
Google Facebook
wtfueu2737 10y ago
What? That's not true at all... Facebook, YouTube, Google, Amazon.
nostrademons 10y ago
That's only partially true. A big company that is profitable is invariably found to have evolved from a small company with profitable unit economics. That company may have run at a loss for many years to grow market share, though. The counterexamples that other people are mentioning here actually all have secret histories that showed they tested revenue models early on. Amazon.com started as a couple Perl scripts to sell books online; Jeff Bezos tested it out to make sure that a.) people would buy books and b.) he would make more money on each book than he spent before seeking massive funding to grow the business. Google had about a half dozen plausible ways of making money in mind at the time they hired Urs Hoezle (employee #9 and their first VP of engineering). Facebook ran experiments with local business ads when they were a bunch of guys in Palo Alto, before they took VC. Twitter had periodically run experiments with ads & sponsored tweets starting in 2008, which had shown they could be instantly profitable if they were willing to sacrifice user growth. But there's a very big difference between knowing you can be profitable and being profitable. You should definitely verify the former before scaling up massively. But if you know that you can be profitable, it is often more profitable in the long run to run at a loss and build up market share.

beambot 10y ago

Amazon?

Androider 10y ago
Amazon is one of the most frugal companies I know, penny-pinching is built into their DNA and one of the reasons IMO they're not a pleasant place to work. Amazon actively chooses to invest every cent they make into expansion (with great results) instead of hoarding profit. That's a huge difference to most companies mentioned in the article that essentially sell $10 bills on the street corner for $9: "Oh, another flyer for a free meal delivery service, why thank you VC-man for paying for my lunch once again. No, I will not ever pay for your service."
- nickpsecurity 10y ago
  You hit the nail on the head. I've always thought ofvthem as a more diverse and digital Walmart. Bezos wasn't coasting on a nice stream of profit: he was building an empire.
- adevine 10y ago
  But the point is that at the very beginning of their company, Amazon was most definitely NOT profitable. They took in a huge amount of investment money to be able to grow their business quickly - exactly what all these other companies are trying to do.
  - ksherlock 10y ago
    Amazon used to (circa 2000) report pro-forma (non GAAP) profit/losses.
deleted 10y ago
[deleted]

actsasbuffoon 10y ago

It's been too long since I thought about that book! It's packed with with great stuff, even though the name incorrectly gives the impression that it'll be fluffy and light on content: https://en.wikipedia.org/wiki/Systemantics https://en.wikipedia.org/wiki/Systemantics

mkagenius 10y ago

> A big company created from scratch is never profitable and cannot be patched up to become profitable. You have to start over with a profitable small company Is this true? You mean you are sure Uber will never get profitable?

JoshTriplett 10y ago

What would "A big company created from scratch" even mean? With the exception of a spin-out from an existing large company (which can arguably still count the history of that company back to its formation), under what circumstances is a company "big" when initially created, rather than starting small and subsequently becoming big (quickly or slowly)?

ChemicalWarfare 10y ago

There are plenty of examples of large companies losing money, getting acquired by other companies and getting turned around to be profitable. Sometimes (not always) the acquired company goes through downsizing led by the new owner before it starts turning profit. Very often this is more of a restructuring move by the new company as the acquired company can in some cases outgrow it's pre-acquisition size. Happens in automotive business all the time with higher-tier companies acquiring their own struggling suppliers.

galistoca 10y ago

Google Facebook

wtfueu2737 10y ago

What? That's not true at all... Facebook, YouTube, Google, Amazon.

nostrademons 10y ago

That's only partially true. A big company that is profitable is invariably found to have evolved from a small company with profitable unit economics. That company may have run at a loss for many years to grow market share, though. The counterexamples that other people are mentioning here actually all have secret histories that showed they tested revenue models early on. Amazon.com started as a couple Perl scripts to sell books online; Jeff Bezos tested it out to make sure that a.) people would buy books and b.) he would make more money on each book than he spent before seeking massive funding to grow the business. Google had about a half dozen plausible ways of making money in mind at the time they hired Urs Hoezle (employee #9 and their first VP of engineering). Facebook ran experiments with local business ads when they were a bunch of guys in Palo Alto, before they took VC. Twitter had periodically run experiments with ads & sponsored tweets starting in 2008, which had shown they could be instantly profitable if they were willing to sacrifice user growth. But there's a very big difference between knowing you can be profitable and being profitable. You should definitely verify the former before scaling up massively. But if you know that you can be profitable, it is often more profitable in the long run to run at a loss and build up market share.