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I've always sort of had this question that continues to feel naive - but I'm not sure I know the answer: why do so many companies feel like they have to grow pe

I've always sort of had this question that continues to feel naive - but I'm not sure I know the answer: why do so many companies feel like they have to grow perpetually? Why can't Twitter just be happy being Twitter, knowing its limits and making a stable profit? Instead it's more users, more VC money, more staff... constantly burning as quickly as possible. There's a ceiling on every business; it's all bound to come crashing down eventually if you don't stop somewhere. Either you do it gracefully or hundreds of folks have to eventually lose their job unexpectedly (very sad). Is the answer simply that earlier VCs put pressure on the executives to keep growing so they can multiply their investment? Personally I dream of making a living establishing a patio11-type software business. Something where I can do a high quality job and own all of the decision-making. The ceiling doesn't have to be very high for one guy to sustain himself, and software is appealing because you can automate away nearly all of the "work".

rogerthis 10y ago
One reason is the rise of other players.
- harryh 10y ago
  This is perhaps the current best response to the question. The idea that twitter can exists as it currently does indefinitely is probably false. It will either grow or die when a competitor better exploits the ecological niche.
nameisu 10y ago
facebook wants new users so it came up with free basics shit.
Naritai 10y ago
Would you buy a stock that is guaranteed to stay flat for the discernible future? No? Then you have your answer. (let's not forget that, thanks to inflation, 'flat' is actually losing money over time.)
- planteen 10y ago
  If a that stock over time covers inflation and pays a dividend, absolutely.
  - jdavis703 10y ago
    At that point wouldn't bonds make more sense? Seems like the risk vs. reward balance is skewed the wrong way if you own a piece of stock that stays flat.
    - tedunangst 10y ago
      If inflation shoots up, your bond will have the same payout but one can at least hope that dividends rise accordingly.
      - coredog64 10y ago
        On the flip side, if the company goes bankrupt, bond holders are at or near the front of the line to be made whole.
  - wefarrell 10y ago
    You're leaving beta. Any stock that fluctuates with the market is expected to have a much higher return than inflation, and with good reason.
    - dlubarov 10y ago
      Presumably the parent meant a stock whose share price tracks inflation in spite of its dividend. So if you reinvest the dividend, you beat inflation and potentially beat the market, depending on the dividend yield.
  - deleted 10y ago
    [deleted]
- bandrami 10y ago
nadezhda18 10y ago
usually, the business that does not grow is just one step away from going into decline. Do not remember where I heard it from. The idea is that a business has to grow; if a business is stagnating, it's too easy for it to slip into a decline and then oblivion.
- inimino 10y ago
  You can open a bakery and run it for a hundred years selling the same bread to the same folks.
Analemma_ 10y ago
People have answered this before, and what it boils down to is: because they took VC money, and then went public. If you bootstrap a business from nothing and grow it on its own, then sustainable growth and stable profit is fine. But Twitter got VC and IPO money with a promise that it would have Facebook-like growth in return. I think the analogy I saw used was that they promised investors a Porsche and instead delivered a Toyota Corolla- it might be solid and reliable, and perfectly fit for purpose, but it's not what they promised when they took that money.
- laluser 10y ago
  Are they liable for those promises though? I am legitimately curious to know if they are contractually obligated to grow at a certain rate or be at certain valuation at this point in time.
  - harryh 10y ago
    Who does "they" refer to in your sentence? Twitter management? If so, then it's not about a contract but about what the owners of the company (the shareholders) have hired them to do.
  - Analemma_ 10y ago
    I don't know that they're "liable" in the sense that people could win a shareholder suit- the bar for those is set pretty high and I doubt Twitter would qualify. My comment was more in response to the accusations that the market is somehow being "unfair" for "punishing" Twitter's lack of continued growth. They're only punishing Twitter for failing to meet the expectations Twitter itself set.
    - harryh 10y ago
      Even the word punishing is really too strong. The stock market isn't making a moral judgement. It's merely an estimate of the value of the company. As twitter's growth prospects decrease the value of the company goes down.
jamesroseman 10y ago
I think the answer is that when Twitter IPO'd there were very clear expectations for the company to perform similar to its perceived contemporaries: Facebook and Google. If you look at the perpetually meteoric rise of GOOGL or FB, it's understandable why shareholders are disappointed -- Twitter burns a lot of capital. So, if its growth has petered out and this is as much money as it can produce, it's understandable to me the line of thinking would then be to cut costs as much as possible so the profit margin can grow. 4k people makes sense when your company is adding value every day, but to these shareholders those aren't translating into results. My $0.02 -- thoughts? > Personally I dream of making a living establishing a patio11-type software business. Something where I can do a high quality job and own all of the decision-making. I have that dream too, but when I have it I always wonder if given that situation I'd be able to stop myself from wanting my baby to keep growing, even if it meant giving up those decision-making abilities and taking on investors.
- chrissnell 10y ago
  In 1994, I registered bikeworld.com and helped my dad put his local bicycle store chain online. It was wild from day one. We didn't even have a proper shopping cart for the first few months--you had to fax or email your order and credit card--but the orders just came in. I was fresh out of the early days of Silicon Valley dotcom startups and I begged my dad to let us take some VC money and go big with this thing. I wanted to do a printed catalog (all the big players did one at this time) and hire some marketing people and front end designers. Dad wouldn't have it. He had run this successful brick and mortar business since 1971 and there was just no way that he was going to trade away ownership for cash to get growth that he didn't want. The stores afforded him amonthly draw that supported him and paid for a nice house and the freedom to pursue his hobbies. He was in his early fifties and all of the tough years taught him to recognize the good thing he had. It was a great lesson for me and his experience as a businessman is a big part of the reason why I never pursued entrepreneurship myself, opting instead for the stable life of a salaryman.
riteshkpr 10y ago
"why do so many companies feel like they have to grow perpetually?" -> Capitalism - growth, year over year, leads to higher stock price (market valuation) which in turn justifies higher payouts to ceo's, bonuses to employees... as growth == innovation If you din't keep growing and managed to keep the business profitable (hit the ceiling), then you weren't 'innovating' and should be replaced ... ... that's the mindset. I don't agree with it.
- traskjd 10y ago
  You need some growth, even if just to battle inflation. Inflation is nibbling away at the value constantly.
  - inimino 10y ago
    Keeping up with inflation isn't growth.
    - windowsworkstoo 10y ago
      You knew exactly what was meant but just in case - you still need nominal growth to avoid negative real growth
      - traskjd 10y ago
        Thanks, and yes that's what I meant :-)
- cookiecaper 10y ago
  Yeah, it's a symptom of the way that companies are valued on the open market. No one can be content with well enough as long as our pricing and ownership models work the way they work.
kbuchanan 10y ago
One simple answer to your question - speaking generally, as I know nothing about Twitter, specifically - is Twitter has yet to realize the expectations the _existing_ investors placed on it. Real money was spent on real dreams, and the dreams failed to materialize. To give up on the BIG is to accept that their returns will fall sadly short.
mxuribe 10y ago
Not everyone is like a cannonball wanting to burn so hot as to melt themselves. I would also like a patio-11 type of software business; so you're not alone! As far as twitter, they unfortunately took a bite of "poison apple" of public investment, and as such are beholden to investors, so must perform (and grow) to ever more higher levels. What would happen - i wonder - if twitter became private again, or better yet some sort of non-profit? What if their platform somehow became the genesis of the new, decentralized web somehow...In other words "phoenix" their way out of this mess by literally -reinventing themselves...If by "reinventing themselves", it might be really more of a major tweak to their operation mode. If twitter - the protocol - as opposed to twitter - the ad/communication platform - reinvented itself in that way, i think i might consider going back and using it; that is, if I'm able to retain control of my own content. Until then, I'll stick with matrix.org (specifically riot.im). [http://matrix.org/ http://matrix.org/] [https://riot.im/ https://riot.im/]
- scottkduncan 10y ago
  I'm not sure they vision you're describing is the direction private equity would take it, but with the major tech buyers shying away it does seem like a private exit is the most likely way this ends. John Hempton summed up this view well: http://brontecapital.blogspot.com/2016/10/some-comment-on-twitter-buyout-rumours.html http://brontecapital.blogspot.com/2016/10/some-comment-on-tw...
- branchless 10y ago
  what is patio11 ! Is it this guy? http://www.kalzumeus.com/ http://www.kalzumeus.com/?
  - wsc981 10y ago
    Yes, he started his business with Bingo Card Creator (IIRC). He wrote some interesting blog posts on his business. His HN handle is patio11.
    - branchless 10y ago
      I see. Thanks for demystifying the folk-lore.
JumpCrisscross 10y ago
Because society works better when it's growing. In a positive-sum game, coöperation is a winning strategy. In a zero-sum game, the only way to get ahead is by taking.
deleted 10y ago
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matchagaucho 10y ago
They're shedding costs in anticipation of delivering poor subscriber and revenue numbers this Thursday. If the stock falls below $10, pretty much any company can swoop in and buy them for a song.
deleted 10y ago
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nostromo 10y ago
Lots of companies don't grow and do fine. But if your current value is based on a huge amount of projected growth, then going to "no growth" will be hugely painful for investors, founders, and employees.
mwfunk 10y ago
In the tech industry it seems like growth (or perceived growth potential) is the only thing that matters, profitability far less so (Amazon for example). Growth is what makes stock go up, so investors want to see growth every single quarter or they bail. If a tech company doesn't show growth, its stock doesn't stand still- it'll drop, maybe significantly. For publicly traded companies, executives can be replaced by the board if they don't deliver, and the board is supposed to represent the shareholders' interests (which for the tech industry means maintaining growth to keep the stock from tanking). It's a pretty messed up antipattern in the business environment IMO. The alternative is staying private, and perhaps limiting (or doing without) external investment.
xapata 10y ago
That's the nature of capitalism. If one company is growing faster than another, relative to the cost of their shares, the capital will move to the company that is growing faster until the price has adjusted.
jldugger 10y ago
> Why can't Twitter just be happy being Twitter, knowing its limits and making a stable profit Your assumption, that Twitter is profitable, is unfortunately wrong.
- trymas 10y ago
  It is not, but it could if twitter would stop spending huge piles of money that makes them go nowhere.
  - nikcub 10y ago
    That is exactly what many on Wall St have been telling them to do for years. Despite the popular perception of investment bankers, they do value "patio11 style businesses" more highly than the Twitter style of spending and losing billions of dollars and not going anywhere. I actually don't think anybody values the later.
    - kgwgk 10y ago
      "Investment bankers" do absolutely love companies that raise money (and the faster they burn it the better, so they come back to raise more).
    - deleted 10y ago
      [deleted]
    - Ryan_Shmotkin 10y ago
      The answer is in your example. Patio's business was barely profitable for a few years until closing down. Growth or death is true for most businesses, just need to decide on the growth acceleration
      - napoleond 10y ago
        > barely profitable Patrick wrote "year in review" posts going back to 2006, and they include full numbers, so you can see for yourself. Profit margins in 2014 (the most recent review) were at a whopping 60% across all his businesses. (See here: http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-in-review-2014/ http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-...) > closing down He sold his SaaS businesses, and they are operated by other people. Here's a podcast episode about it: http://www.kalzumeus.com/2016/08/26/kalzumeus-podcast-episode-13-selling-online-businesses-with-thomas-smale/ http://www.kalzumeus.com/2016/08/26/kalzumeus-podcast-episod... They are still in operation, and presumably still profitable: https://www.appointmentreminder.org/ https://www.appointmentreminder.org/ https://www.bingocardcreator.com/ https://www.bingocardcreator.com/ > Growth or death Not really. Moving past patio11 as an example, just look at local businesses in your community. The ones that have been there the longest (> 50 years) have undoubtedly gone through periods of both growth and decline (I don't mean decline toward death, I mean decline for a bit and then start growing again). Many of the ones that have been there for about 20 years will have reached a sort of "asymptote" of growth--they would have grown for the first 10 or 15 years and then stabilized around a size that feels "comfortable". There are many more businesses in the world than just start-ups and public companies.
brainflake 10y ago
The simple answer is if you IPO at a certain price and declare you don't plan on growing at all, then nobody will participate in your offering or buy your shares in the open market. It's just a fact of life that as a public company you need to prove to your shareholders that next year your shares will be worth more than right now. Otherwise outside investors have no reason to invest in your company rather than keeping their money in a savings account (or a low risk alternative). The same basic premise applies to VC investments. That's not to say that a patio11-style business is wrong, just that it's very different. It's personal preference if you've started the business and there's no right or wrong way.
- Zigurd 10y ago
  Even worse, once you've convinced investors that you're an essential component of the internet and you get a monster valuation, the only solutions worth looking at are ones that will fulfill a destiny that recedes with every passing day. Who is going to be the CEO who says "fuggeddaboudit, we ain't never gonna be Facebook. Learn to live with Twitter as the unfiltered (and therefore troll-infested) breaking news utility and whatever valuation that brings us."
jusben1369 10y ago
Hah. I think patio11 just joined Stripe, one of the fastest growing startups around :) Anyway, besides many of the usual answers, talent is a key one often forgotten. People want the chance to do new and ever changing things so as to be challenged. It's hard to retain good people when they know it's going to be a smaller company with modest growth. What often kills companies with slowish growth is that they lose their best people to other companies with a more dynamic environment.
- user5994461 10y ago
  > What often kills companies with slowish growth is that they lose their best people to other companies with a more dynamic environment. Till the best people get tired of stuff everchanging and breaking, combined with the lack of resources and the 70 hours startup week. Then they drop the 'dynamic environment' and come back to Big Goompany :D
  - krinchan 10y ago
    I can't tell you how true this is. A lot of my friends still in the startup world call me a "burn out" and accuse me of having "no ambition." Yeah, I have no ambition. Yet I can totally take a week off and head to Puerto Rico. Not only does the world not end, but I don't get called with an emergency while I'm hiking through the rainforest to find a swimming hole. I get to go out every weekend. I go out on Sundays. I go out whenever. I pretty much key in 40 hours and work 35 hours a week (10 a.m. to 5 or 6). Yeah, maybe I don't get paid above $200,000, but my life is straight out of some Oprah "Live your best life" book. So bite me. I'll take no ambition over that startup life any day.
mathattack 10y ago
It's not just VCs, it's the current owners. When you market value is much higher than sales and earnings, owners expect growth. This is the natural consequence of getting outside equity. Please note that the owners (equity holders) demanding this growth include the employees and managers.
fuqted 10y ago
A stock price takes into account future growth. When growth begins to stagnate, then the ticker will fall. People lose money. In most cases it probably isn't a huge deal, but the fact that Twitter isn't profitable is likely a (large) factor. Without a given amount of users, it won't be profitable and decreased growth obviously means that profitability is further out. Hence them cutting costs. There's obviously nothing wrong with a bootstrapped / lifestyle business. The people at Basecamp are big proponents of it. https://www.youtube.com/watch?v=lBfVxBj61z0 https://www.youtube.com/watch?v=lBfVxBj61z0 Here's one interview out of plenty where they talk about this kind of thing.
ProAm 10y ago
Because they are public, have investors and are for sale. They are going to keep cutting until they appear cheap enough to buy. And once they are bought there will be more cuts. Twitter is having death pangs
joshAg 10y ago
They don't. Or at least once a company is public they don't. At a very high level, one of the arbitrary ways to divide up stocks is into growth stocks, value stocks, and income stocks. You can google those terms if you want a deeper level of understanding i provide, since those are the terms of art used in financial circles. Growth stocks are stocks for companies that you/investors feel will continue to see increasing profits/revenues/earnings compared to the market. Value stocks are companies that you/investors feel will are undervalued compared to their fundamentals. Income stocks are companies that you/investors take for the dividend payments. Continuing at a super high level (ie these are still generalities with examples to the contrary), growth stocks have higher price to earnings ratios and are valued primarily based on capital appreciation ("i think this stock's price is undervalued compared to its actual value"), which very much depends on how successful someone thinks a company will be, whereas value stocks have low price to earnings ratios and are valued primarily based on expected dividends payments (sidenote: one way for determining the value of a stock is to take the limit of the sum of all expected dividends from now until infinity). Income stocks aren't priced incorrectly the way the other two are and tend to match what investors expect the dividend payments to be (sidenote: all stocks can/do pay dividends, but that's generally not what drives the purchase of value/growth stocks). Tech companies are almost all growth stocks. People buy them on the expectation that they will execute better than the rest of their competitors and that this will result in a large growth in revenue. Profitability doesn't really matter that much here as long as they have enough money to keep operating, because the expectation is that profitability will come later after revenue increases. Once the company thinks that a business unit has saturated the market to the point where it can no longer grow revenue beyond the average rate of the market, it will transition to an income stock by focusing on cutting costs and trying to increase profitability as much as possible (since a priori revenue can't really increase in relation to the market). If a company wants to remain a growth stock it needs to 1) successfully transition business units from growth to income without losing too much revenue (and simultaneously becoming profitable based on expected revenue levels, ie driving down expenses below revenue), and 2) identify new emerging markets where they can create a new business unit that can drive growth. If you do this right, you can fund 2 with 1 and remain a growth stock indefinitely. If you do this wrong, then investors will get angry and force you to pay higher dividends and sell off or shut down the growth parts of your business. Growth stocks have advantages for (tech) companies due to the focus not being on profitability: Paying employees with RSUs (no one really does options anymore if they're public, but sure, options, too) is attractive to employees because the stock is expected to increase in value and RSUs/options are allocated in constant amounts of stock, not constant amounts of dollars (at an income stock company, stocks aren't as attractive as cold hard cash to employees, because of all the hassle of turning them into cash for essentially no gain, and this lowers profitability for the company compared to paying straight cash due to the way accounting works). Companies can lavish nonstandard and standard benefits on employees to attract top talent without investors batting much of an eye (at an income company it's much tougher to justify super great benefits due to the focus on profitability (why pay a top-tier person if a middle tier-person costs less than revenue loss associated with not going with the best). After a company is public it's not so much VCs as it it the stockholders in general (of which the VCs are usually still a substantial member). But in general, they'd both say the same thing: either increase revenue substantially (preferred) or gracefully transition to income stock (less preferred). VCs will hang onto the stock as long as they think that it's a good investment for their fund (i don't know when this means they sell it, but it's not necessarily immediately after IPO). Companies get in trouble when they are having trouble growing revenue. Investors will quickly push for them to transition to an income stock if they lose confidence in the company's ability to continue to grow. This is because in order for the stock price to not drop revenue has to keep increasing or the company has to become profitable enough to justify its stock price when considered as an income stock. Twitter wants to remain a growth stock, but investors want to see increasing revenue for that. Since twitter can't do that, it's got to focus on increasing profitability by cutting expenses. I left off value stocks so far. Essentially, if you fuck up the transition from growth to income stock for a business unit or you fuck up identifying new markets to grow into, your stock price will go down accordingly. If people think that this was a mistake that the company can correct and learn from, then they will see the price as undervalued compared to how they think the company will perform. This belief that the market has overreacted is what allows people to consider a certain stock a value stock.
gozur88 10y ago
>Why can't Twitter just be happy being Twitter, knowing its limits and making a stable profit? The short answer? Because they don't make money. I guess it's possible you could grow your company to a point where you say "Okay, we've filled our niche. Growing more doesn't make sense, so we'll just extract as much cash as we can." The problem is you have to make money to do that. Twitter doesn't make money and never has. They can say "Well, we're still growing, and that costs money, but at some point we'll monetize that growth and make tons of money," but it's only credible as long as they're growing.
- enraged_camel 10y ago
  I think they have good revenue, but their insanely high expenses (coming mostly from the high number of employees, but probably other things that assume hyper growth too) make it impossible to turn a good profit.
  - dbbk 10y ago
    They have just under 4,000 employees and spent $2.7 billion last year. Surely that can't be just it?
- artursapek 10y ago
  I think if Twitter settled down and optimized they could probably be making a healthy profit. That's sort of what I was getting at in my OP.
  - gozur88 10y ago
    I doubt they can do it. We'll see.
StanislavPetrov 10y ago
> why do so many companies feel like they have to grow perpetually? Because, in a nutshell, the "economy" is a massive ponzi scheme that depends on constant growth. This isn't a popular opinion among many of the VC crowd that believe in the myth of the meritocracy, but its an irrefutable truth. For example, the FED (and other central banks) set a target inflation rate (usually around 2%, but it can vary). That means if you are "stable", and the central bank has its way, you are actually shrinking. Its obviously much more complex then this, but that is the crux of it. Unfortunately "sustainability", whether economic or environmental, isn't a priority for those .000001% of the oligarchs that run the show and make their money off debt servicing.
- guelo 10y ago
  > That means if you are "stable", and the central bank has its way, you are actually shrinking at 2% a year. No, inflation means, in aggregate, the price businesses charge goes up.
  - StanislavPetrov 10y ago
    That's completely wrong. Its a lost cause to try to explain economic theory on a forum but suffice to say that central banks factor completely arbitrary variables to get the number they want. http://www.bls.gov/cpi/cpihqaitem.htm http://www.bls.gov/cpi/cpihqaitem.htm >The CPI is calculated using prices for a fixed basket of goods and services through time. While the basket is periodically revised to reflect changing consumer expenditures, some items being priced in the sample come and go from the marketplace, making collection of these prices from month to month difficult. When an item is no longer available in the marketplace, a similar replacement item is selected. Often there are no similar items from which to choose, and as a result, a less comparable item is selected, potentially introducing quality change and an associated price differential into the index. The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item. That toilet paper you used to buy costs twice as much? Well the FED says the new toilet paper is of a higher quality, so it is actually counted as being lower priced then the toilet paper you bought for half as much last year.
rs999gti 10y ago
> why do so many companies feel like they have to grow perpetually? Public companies have investors and those investors who have put in capital (money or time) either in the beginning or during operations expect a return on their investment. The company taking the investment keeps selling shares to get more capital getting them stuck on a ROI treadmill. The only way to escape the ROI treadmill is to self-fund from operations profits and not take outside investments. Unfortunately many of these startups depend on debt to keep operations going.
ChuckMcM 10y ago
Simple answer: net marginal customer revenue. I'm not sure if that is an accounting term but I've seen it used in similar situations to describe how the business model works, or doesn't work. It goes kind of like this: Lets say that 1 SRE engineer, 1/4th developer, 1/3rd customer support agent, and 1/10th of a manager can support 10,000 users. (all made up numbers of course for this example). You can't really cut up manager's in 10ths so you really need 10x this to have 10 SRE engineers,4 developers, 3 customer support agents, and 1 manager. So that is 100,000 users. But the cost of all those people don't bring in enough revenue from those users. But there is a "scaling" effect, such that if you have twice that many people, instead of 200,000 users you can support 225,000 users. Four times and instead of 450,0000 users you can support 500,000 users. So the trick is to find the point in the model where you have enough users to make enough revenue to pay for all those people, and the hardware that supplies the service. At that point you're "break even", and then if you can push past it, you start generate cash above what you need, or net profit. The more you can grow, the more net cash you can generate, and the "value" of your company, is typically a function on your earnings before you start paying taxes, and costing depreciation (EBITDA). A web business like Twitter's (or Facebook's for that matter) then can be valued based on how many users they have and the revenue per thousand user metrics they can drive minus the cost per thousand users. If you stop growing before your generating net income, you die. So there is a minimum you have to hit. And if you're well managed, you are constantly trying to minimize costs and maximize revenue to get a bigger income factor. Here is another issue, generally, like with "blade computers" you get the most money by having just enough people and resources to handle all of your load. When you anticipate growth, if you build out more resources and that growth doesn't come, your stuck with the costs. Like having a computing blades chassis with just one blade in it. A really expensive computer. So you back off and lay off those folks you hired to get your costs back under control so you don't lose a ton of money. Again, a well managed company will attempt to grow without hiring resources right up until they can't grow any further, and then hire. So that when the next tranche of people show up, you are ideally already net positive on income, just not by as large a margin as you used to be. At the end of the day you're managing costs, user growth, and revenue per user. If you can't juggle all three you run a high risk of becoming an acquisition by someone who can.
messel 10y ago
You nailed it, taking investor money and being guided by it to grow until your business breaks. Really appreciate your last paragraph.
koliber 10y ago
On a longer timeframe, if you don't grow, you die. Scenario time... Let's say I have a company that is growing pretty well. After some time, I feel the easy growth stops. Let's say this is the "right size" point you are alluding to, and I was able to recognize it, spot on. I stop hiring and just work with the existing resources that I have. In theory everything should be good for a long time. Unfortunately, I do not exist in a vacuum. I have competition, and this competition continues to expand. Eventually, if they continue to invest and grow, even past their "right size", they will take away my market share. As they grow stronger, I will grow weaker. This may cause my company to lose enough sales that I will have to fire people. The fallacy is that there is a "right size" that will continue to be the "right size" through time. A market is a dynamic system that does not stand still. What was the right size at one point, may be too large or too small in the future, due to things beyond my direct control. As a smart businessman, I have to understand this. I have to expand when there is room, and try to outperform the competition when the market is crowded. I need to downsize when the time is right to protect the rest of the business. What you are saying is easier done on a smaller scale. There are many so-called "lifestyle" businesses which live by a philosophy that is closer to yours and farther from Twitter's. On a global scale, it much more difficult to follow the "lifestyle" business philosophy and succeed.
- B1FF_PSUVM 10y ago
  > I have competition, and this competition continues to expand. Fallacy is here.
janeFondler 10y ago
Because Twitter has received investment on the promise of eventual profit. A low / no growth model is only feasible if they don't have investors / shareholders bucking for returns at every decision point. Twitter, has made a deal with the devil in becoming a publicly traded company because at some point needs to show their stakeholders a path to profitability. Job cuts, cutting expenditure whilst hopefully maintaining profits, are a good way to demonstrate this. If Twitter wants to become a public internet utility, like wikipedia, existing investors will demand something like a share buyback, how will Twitter afford this without a period of profitability? Finding a sugar daddy to buy them out is one option but the recent sutors probably felt that twitter stock is overvalued, largely because of the lack of profits.
- jomamaxx 10y ago
  It is not 'making a deal with the devil' to take other people's money on the basis that you'll return a certain amount of profit - and then not do so. The 'devil' it would seem are the Twitter founders, who took investors money on false premises. So Twitter has hit a ceiling, they are making adjustments, which sadly are op cuts. If they want to hire more people than can grow their numbers.
blahblah3 10y ago
Growth comes from reinvestment of capital into the business. This makes sense from a shareholder perspective when the risk-adjusted return on this invested capital outweighs the returns capital could get elsewhere (other stocks). Some companies will actually stop growing and start paying dividends/sharebuybacks for this reason.
rebelidealist 10y ago
When you get institutional investors your shareholders becomes liquid. When a company goes public, new shareholders (banks, funds, individuals) want growth FOREVER.
dboreham 10y ago
Because money people expect the second derivative to be positive (because they only make money if that's the case).
JustSomeNobody 10y ago
Quarterly Earnings Reports. Companies have to report earnings quarterly. Investors expect quarterly growth. If they don't get it they punish the company.
awkward 10y ago
The VC answer is good, but I think growth is necessary to sustain the social part of a social network as well. I joined Twitter very late, to get news when the Boston marathon bombing was happening, and while the feeling that twitter is a forum that covers the whole internet is still there, it's at late stages. Most people are well and truly over the idea that twitter is worthwhile in and of itself, and most people are pretty much following as many people as they want to be. It's much more likely that long time users are cutting down on follows than adding new ones. It still has a culture where you can talk to strangers on the internet, but a pretty big etiquette has grown up around that, and that can also be intimidating coming in late.
maxt 10y ago
> Dr. Srikumar created a life changing business school course so powerful that it has its own alumni association. He is the author of Happiness at Work and has helped thousands of executives find greater fulfillment in both life and work. https://www.youtube.com/watch?v=bGBoXTaitr0 https://www.youtube.com/watch?v=bGBoXTaitr0 Worth watching because his words of advice did help me when trying to grow my own business. I didn't reach my numbers, but having a goal gave me a sense of direction, and there was a sense of movement. I think we're only at a loss in business when everything falls still. I'm no expert, but I don't sense that Twitter is falling still just yet, and there's still movement. As you said: "Why can't Twitter just be happy being Twitter". I can't imagine the web without Twitter and it still feels like some sort of plumbing, or public utility at this stage. Twitter is there like water (hopefully). You turn on the tap, and it's there like water.
- quxbar 10y ago
  I have to point out that this last point is totally ridiculous. Twitter is functionally just like like Xanga or Livejournal or any other dead blogging platform you care to name. Just because you have a community of dedicated users and a better UI doesn't mean the service is unique. It's as if you thought Evian(R) or Dasani(TM) are public utilities. Frankly, I think we're going to see a backlash against information overload - social media has lost its novelty, and most consumers need far less of it than the producers want to provide.
  - VLM 10y ago
    "than the producers want to provide" Yes this is the analogy to TV where the market provided precisely 3 channels (plus PBS) for decades and a third of the population reliably watched each show on each channel, but that was 1970 and now in 2010s there's 500 cable channels and a wildly success narrowcast might reach as many as 1 in 40 citizens. Usually far less, of course, as little reach as 1 in 300 is possible with aggressive enough advertising budgets. Of course there is the superbowl but its only a couple hours per year and there's only one and that one is already here. It has certain implications for future startups. It would be doom for current startups that financed assuming they'll be the one site that all 6 billion humans use. If the social media market follows the TV model, in 20 years we'll be back to multiple tribal sized BBSes, more or less, with the occasional temporary cultural fad resulting in short term scaling headaches. For about a month, about a billion of us, will try to simultaneously log into the pokemon go server, then we'll all try to forget it ever happened, which actually is a big enough problem to keep many engineers employed. I'm not sure the financial markets know what to think of legacy TV right now, much less what will, by then, be legacy social media. How do you finance or account for a one month pokemon go, times hundreds per year, when thats the new normal not an aberration?
robbiemitchell 10y ago
Bear in mind: Twitter has lost money (billions) over its lifetime, let alone failed to multiply the investment. More: http://money.cnn.com/2016/03/21/technology/twitter-10th-anniversary/ http://money.cnn.com/2016/03/21/technology/twitter-10th-anni...
- drakonandor 10y ago
  That mindset is prevalent in people who can't understand any business being more valuable than a lemonade stand (preferably cardboard, so you can profit from day 1).
code_sardaukar 10y ago
You say that it's very sad for people to lose their jobs, but how sad is it if a business does not grow as fast as it might have, and so doesn't employ those people in the first place?
jeffthespasm 10y ago
This is comforting to read, because I was beginning to think I was the only one with that particular dream. I hope we both do it. Cheers!
__derek__ 10y ago
Related to your point about your ideal sort of business, I enjoyed reading Rand Fishkin's reflections on his experience with Moz. On raising money[1]: > As a result, the behavior VCs generally need to encourage is growth at any cost. If a company burns out trying to become that 100X star in the portfolio, it’s OK. But if they choose to grow slow and steady and build a sustainable but not particularly dominant business over 10–15 years, that’s non-ideal for the portfolio or the fund’s returns. [1]: https://medium.com/@randfish/what-id-change-keep-the-same-don-t-yet-know-c56953979e24#51a1 https://medium.com/@randfish/what-id-change-keep-the-same-do...

rogerthis 10y ago

One reason is the rise of other players.

harryh 10y ago
This is perhaps the current best response to the question. The idea that twitter can exists as it currently does indefinitely is probably false. It will either grow or die when a competitor better exploits the ecological niche.

nameisu 10y ago

facebook wants new users so it came up with free basics shit.

Naritai 10y ago

Would you buy a stock that is guaranteed to stay flat for the discernible future? No? Then you have your answer. (let's not forget that, thanks to inflation, 'flat' is actually losing money over time.)

planteen 10y ago
If a that stock over time covers inflation and pays a dividend, absolutely.
- jdavis703 10y ago
  At that point wouldn't bonds make more sense? Seems like the risk vs. reward balance is skewed the wrong way if you own a piece of stock that stays flat.
  - tedunangst 10y ago
    If inflation shoots up, your bond will have the same payout but one can at least hope that dividends rise accordingly.
    - coredog64 10y ago
      On the flip side, if the company goes bankrupt, bond holders are at or near the front of the line to be made whole.
- wefarrell 10y ago
  You're leaving beta. Any stock that fluctuates with the market is expected to have a much higher return than inflation, and with good reason.
  - dlubarov 10y ago
    Presumably the parent meant a stock whose share price tracks inflation in spite of its dividend. So if you reinvest the dividend, you beat inflation and potentially beat the market, depending on the dividend yield.
- deleted 10y ago
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bandrami 10y ago

nadezhda18 10y ago

usually, the business that does not grow is just one step away from going into decline. Do not remember where I heard it from. The idea is that a business has to grow; if a business is stagnating, it's too easy for it to slip into a decline and then oblivion.

inimino 10y ago
You can open a bakery and run it for a hundred years selling the same bread to the same folks.

Analemma_ 10y ago

People have answered this before, and what it boils down to is: because they took VC money, and then went public. If you bootstrap a business from nothing and grow it on its own, then sustainable growth and stable profit is fine. But Twitter got VC and IPO money with a promise that it would have Facebook-like growth in return. I think the analogy I saw used was that they promised investors a Porsche and instead delivered a Toyota Corolla- it might be solid and reliable, and perfectly fit for purpose, but it's not what they promised when they took that money.

laluser 10y ago
Are they liable for those promises though? I am legitimately curious to know if they are contractually obligated to grow at a certain rate or be at certain valuation at this point in time.
- harryh 10y ago
  Who does "they" refer to in your sentence? Twitter management? If so, then it's not about a contract but about what the owners of the company (the shareholders) have hired them to do.
- Analemma_ 10y ago
  I don't know that they're "liable" in the sense that people could win a shareholder suit- the bar for those is set pretty high and I doubt Twitter would qualify. My comment was more in response to the accusations that the market is somehow being "unfair" for "punishing" Twitter's lack of continued growth. They're only punishing Twitter for failing to meet the expectations Twitter itself set.
  - harryh 10y ago
    Even the word punishing is really too strong. The stock market isn't making a moral judgement. It's merely an estimate of the value of the company. As twitter's growth prospects decrease the value of the company goes down.

jamesroseman 10y ago

I think the answer is that when Twitter IPO'd there were very clear expectations for the company to perform similar to its perceived contemporaries: Facebook and Google. If you look at the perpetually meteoric rise of GOOGL or FB, it's understandable why shareholders are disappointed -- Twitter burns a lot of capital. So, if its growth has petered out and this is as much money as it can produce, it's understandable to me the line of thinking would then be to cut costs as much as possible so the profit margin can grow. 4k people makes sense when your company is adding value every day, but to these shareholders those aren't translating into results. My $0.02 -- thoughts? > Personally I dream of making a living establishing a patio11-type software business. Something where I can do a high quality job and own all of the decision-making. I have that dream too, but when I have it I always wonder if given that situation I'd be able to stop myself from wanting my baby to keep growing, even if it meant giving up those decision-making abilities and taking on investors.

chrissnell 10y ago
In 1994, I registered bikeworld.com and helped my dad put his local bicycle store chain online. It was wild from day one. We didn't even have a proper shopping cart for the first few months--you had to fax or email your order and credit card--but the orders just came in. I was fresh out of the early days of Silicon Valley dotcom startups and I begged my dad to let us take some VC money and go big with this thing. I wanted to do a printed catalog (all the big players did one at this time) and hire some marketing people and front end designers. Dad wouldn't have it. He had run this successful brick and mortar business since 1971 and there was just no way that he was going to trade away ownership for cash to get growth that he didn't want. The stores afforded him amonthly draw that supported him and paid for a nice house and the freedom to pursue his hobbies. He was in his early fifties and all of the tough years taught him to recognize the good thing he had. It was a great lesson for me and his experience as a businessman is a big part of the reason why I never pursued entrepreneurship myself, opting instead for the stable life of a salaryman.

riteshkpr 10y ago

"why do so many companies feel like they have to grow perpetually?" -> Capitalism - growth, year over year, leads to higher stock price (market valuation) which in turn justifies higher payouts to ceo's, bonuses to employees... as growth == innovation If you din't keep growing and managed to keep the business profitable (hit the ceiling), then you weren't 'innovating' and should be replaced ... ... that's the mindset. I don't agree with it.

traskjd 10y ago
You need some growth, even if just to battle inflation. Inflation is nibbling away at the value constantly.
- inimino 10y ago
  Keeping up with inflation isn't growth.
  - windowsworkstoo 10y ago
    You knew exactly what was meant but just in case - you still need nominal growth to avoid negative real growth
    - traskjd 10y ago
      Thanks, and yes that's what I meant :-)
cookiecaper 10y ago
Yeah, it's a symptom of the way that companies are valued on the open market. No one can be content with well enough as long as our pricing and ownership models work the way they work.

kbuchanan 10y ago

One simple answer to your question - speaking generally, as I know nothing about Twitter, specifically - is Twitter has yet to realize the expectations the _existing_ investors placed on it. Real money was spent on real dreams, and the dreams failed to materialize. To give up on the BIG is to accept that their returns will fall sadly short.

mxuribe 10y ago

Not everyone is like a cannonball wanting to burn so hot as to melt themselves. I would also like a patio-11 type of software business; so you're not alone! As far as twitter, they unfortunately took a bite of "poison apple" of public investment, and as such are beholden to investors, so must perform (and grow) to ever more higher levels. What would happen - i wonder - if twitter became private again, or better yet some sort of non-profit? What if their platform somehow became the genesis of the new, decentralized web somehow...In other words "phoenix" their way out of this mess by literally -reinventing themselves...If by "reinventing themselves", it might be really more of a major tweak to their operation mode. If twitter - the protocol - as opposed to twitter - the ad/communication platform - reinvented itself in that way, i think i might consider going back and using it; that is, if I'm able to retain control of my own content. Until then, I'll stick with matrix.org (specifically riot.im). [http://matrix.org/ http://matrix.org/] [https://riot.im/ https://riot.im/]

scottkduncan 10y ago
I'm not sure they vision you're describing is the direction private equity would take it, but with the major tech buyers shying away it does seem like a private exit is the most likely way this ends. John Hempton summed up this view well: http://brontecapital.blogspot.com/2016/10/some-comment-on-twitter-buyout-rumours.html http://brontecapital.blogspot.com/2016/10/some-comment-on-tw...
branchless 10y ago
what is patio11 ! Is it this guy? http://www.kalzumeus.com/ http://www.kalzumeus.com/?
- wsc981 10y ago
  Yes, he started his business with Bingo Card Creator (IIRC). He wrote some interesting blog posts on his business. His HN handle is patio11.
  - branchless 10y ago
    I see. Thanks for demystifying the folk-lore.

JumpCrisscross 10y ago

Because society works better when it's growing. In a positive-sum game, coöperation is a winning strategy. In a zero-sum game, the only way to get ahead is by taking.

deleted 10y ago

[deleted]

matchagaucho 10y ago

They're shedding costs in anticipation of delivering poor subscriber and revenue numbers this Thursday. If the stock falls below $10, pretty much any company can swoop in and buy them for a song.

deleted 10y ago

[deleted]

nostromo 10y ago

Lots of companies don't grow and do fine. But if your current value is based on a huge amount of projected growth, then going to "no growth" will be hugely painful for investors, founders, and employees.

mwfunk 10y ago

In the tech industry it seems like growth (or perceived growth potential) is the only thing that matters, profitability far less so (Amazon for example). Growth is what makes stock go up, so investors want to see growth every single quarter or they bail. If a tech company doesn't show growth, its stock doesn't stand still- it'll drop, maybe significantly. For publicly traded companies, executives can be replaced by the board if they don't deliver, and the board is supposed to represent the shareholders' interests (which for the tech industry means maintaining growth to keep the stock from tanking). It's a pretty messed up antipattern in the business environment IMO. The alternative is staying private, and perhaps limiting (or doing without) external investment.

xapata 10y ago

That's the nature of capitalism. If one company is growing faster than another, relative to the cost of their shares, the capital will move to the company that is growing faster until the price has adjusted.

jldugger 10y ago

> Why can't Twitter just be happy being Twitter, knowing its limits and making a stable profit Your assumption, that Twitter is profitable, is unfortunately wrong.

trymas 10y ago
It is not, but it could if twitter would stop spending huge piles of money that makes them go nowhere.
- nikcub 10y ago
  That is exactly what many on Wall St have been telling them to do for years. Despite the popular perception of investment bankers, they do value "patio11 style businesses" more highly than the Twitter style of spending and losing billions of dollars and not going anywhere. I actually don't think anybody values the later.
  - kgwgk 10y ago
    "Investment bankers" do absolutely love companies that raise money (and the faster they burn it the better, so they come back to raise more).
  - deleted 10y ago
    [deleted]
  - Ryan_Shmotkin 10y ago
    The answer is in your example. Patio's business was barely profitable for a few years until closing down. Growth or death is true for most businesses, just need to decide on the growth acceleration
    - napoleond 10y ago
      > barely profitable Patrick wrote "year in review" posts going back to 2006, and they include full numbers, so you can see for yourself. Profit margins in 2014 (the most recent review) were at a whopping 60% across all his businesses. (See here: http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-in-review-2014/ http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-...) > closing down He sold his SaaS businesses, and they are operated by other people. Here's a podcast episode about it: http://www.kalzumeus.com/2016/08/26/kalzumeus-podcast-episode-13-selling-online-businesses-with-thomas-smale/ http://www.kalzumeus.com/2016/08/26/kalzumeus-podcast-episod... They are still in operation, and presumably still profitable: https://www.appointmentreminder.org/ https://www.appointmentreminder.org/ https://www.bingocardcreator.com/ https://www.bingocardcreator.com/ > Growth or death Not really. Moving past patio11 as an example, just look at local businesses in your community. The ones that have been there the longest (> 50 years) have undoubtedly gone through periods of both growth and decline (I don't mean decline toward death, I mean decline for a bit and then start growing again). Many of the ones that have been there for about 20 years will have reached a sort of "asymptote" of growth--they would have grown for the first 10 or 15 years and then stabilized around a size that feels "comfortable". There are many more businesses in the world than just start-ups and public companies.

brainflake 10y ago

The simple answer is if you IPO at a certain price and declare you don't plan on growing at all, then nobody will participate in your offering or buy your shares in the open market. It's just a fact of life that as a public company you need to prove to your shareholders that next year your shares will be worth more than right now. Otherwise outside investors have no reason to invest in your company rather than keeping their money in a savings account (or a low risk alternative). The same basic premise applies to VC investments. That's not to say that a patio11-style business is wrong, just that it's very different. It's personal preference if you've started the business and there's no right or wrong way.

Zigurd 10y ago
Even worse, once you've convinced investors that you're an essential component of the internet and you get a monster valuation, the only solutions worth looking at are ones that will fulfill a destiny that recedes with every passing day. Who is going to be the CEO who says "fuggeddaboudit, we ain't never gonna be Facebook. Learn to live with Twitter as the unfiltered (and therefore troll-infested) breaking news utility and whatever valuation that brings us."

jusben1369 10y ago

Hah. I think patio11 just joined Stripe, one of the fastest growing startups around :) Anyway, besides many of the usual answers, talent is a key one often forgotten. People want the chance to do new and ever changing things so as to be challenged. It's hard to retain good people when they know it's going to be a smaller company with modest growth. What often kills companies with slowish growth is that they lose their best people to other companies with a more dynamic environment.

user5994461 10y ago
> What often kills companies with slowish growth is that they lose their best people to other companies with a more dynamic environment. Till the best people get tired of stuff everchanging and breaking, combined with the lack of resources and the 70 hours startup week. Then they drop the 'dynamic environment' and come back to Big Goompany :D
- krinchan 10y ago
  I can't tell you how true this is. A lot of my friends still in the startup world call me a "burn out" and accuse me of having "no ambition." Yeah, I have no ambition. Yet I can totally take a week off and head to Puerto Rico. Not only does the world not end, but I don't get called with an emergency while I'm hiking through the rainforest to find a swimming hole. I get to go out every weekend. I go out on Sundays. I go out whenever. I pretty much key in 40 hours and work 35 hours a week (10 a.m. to 5 or 6). Yeah, maybe I don't get paid above $200,000, but my life is straight out of some Oprah "Live your best life" book. So bite me. I'll take no ambition over that startup life any day.

mathattack 10y ago

It's not just VCs, it's the current owners. When you market value is much higher than sales and earnings, owners expect growth. This is the natural consequence of getting outside equity. Please note that the owners (equity holders) demanding this growth include the employees and managers.

fuqted 10y ago

A stock price takes into account future growth. When growth begins to stagnate, then the ticker will fall. People lose money. In most cases it probably isn't a huge deal, but the fact that Twitter isn't profitable is likely a (large) factor. Without a given amount of users, it won't be profitable and decreased growth obviously means that profitability is further out. Hence them cutting costs. There's obviously nothing wrong with a bootstrapped / lifestyle business. The people at Basecamp are big proponents of it. https://www.youtube.com/watch?v=lBfVxBj61z0 https://www.youtube.com/watch?v=lBfVxBj61z0 Here's one interview out of plenty where they talk about this kind of thing.

ProAm 10y ago

Because they are public, have investors and are for sale. They are going to keep cutting until they appear cheap enough to buy. And once they are bought there will be more cuts. Twitter is having death pangs

joshAg 10y ago

They don't. Or at least once a company is public they don't. At a very high level, one of the arbitrary ways to divide up stocks is into growth stocks, value stocks, and income stocks. You can google those terms if you want a deeper level of understanding i provide, since those are the terms of art used in financial circles. Growth stocks are stocks for companies that you/investors feel will continue to see increasing profits/revenues/earnings compared to the market. Value stocks are companies that you/investors feel will are undervalued compared to their fundamentals. Income stocks are companies that you/investors take for the dividend payments. Continuing at a super high level (ie these are still generalities with examples to the contrary), growth stocks have higher price to earnings ratios and are valued primarily based on capital appreciation ("i think this stock's price is undervalued compared to its actual value"), which very much depends on how successful someone thinks a company will be, whereas value stocks have low price to earnings ratios and are valued primarily based on expected dividends payments (sidenote: one way for determining the value of a stock is to take the limit of the sum of all expected dividends from now until infinity). Income stocks aren't priced incorrectly the way the other two are and tend to match what investors expect the dividend payments to be (sidenote: all stocks can/do pay dividends, but that's generally not what drives the purchase of value/growth stocks). Tech companies are almost all growth stocks. People buy them on the expectation that they will execute better than the rest of their competitors and that this will result in a large growth in revenue. Profitability doesn't really matter that much here as long as they have enough money to keep operating, because the expectation is that profitability will come later after revenue increases. Once the company thinks that a business unit has saturated the market to the point where it can no longer grow revenue beyond the average rate of the market, it will transition to an income stock by focusing on cutting costs and trying to increase profitability as much as possible (since a priori revenue can't really increase in relation to the market). If a company wants to remain a growth stock it needs to 1) successfully transition business units from growth to income without losing too much revenue (and simultaneously becoming profitable based on expected revenue levels, ie driving down expenses below revenue), and 2) identify new emerging markets where they can create a new business unit that can drive growth. If you do this right, you can fund 2 with 1 and remain a growth stock indefinitely. If you do this wrong, then investors will get angry and force you to pay higher dividends and sell off or shut down the growth parts of your business. Growth stocks have advantages for (tech) companies due to the focus not being on profitability: Paying employees with RSUs (no one really does options anymore if they're public, but sure, options, too) is attractive to employees because the stock is expected to increase in value and RSUs/options are allocated in constant amounts of stock, not constant amounts of dollars (at an income stock company, stocks aren't as attractive as cold hard cash to employees, because of all the hassle of turning them into cash for essentially no gain, and this lowers profitability for the company compared to paying straight cash due to the way accounting works). Companies can lavish nonstandard and standard benefits on employees to attract top talent without investors batting much of an eye (at an income company it's much tougher to justify super great benefits due to the focus on profitability (why pay a top-tier person if a middle tier-person costs less than revenue loss associated with not going with the best). After a company is public it's not so much VCs as it it the stockholders in general (of which the VCs are usually still a substantial member). But in general, they'd both say the same thing: either increase revenue substantially (preferred) or gracefully transition to income stock (less preferred). VCs will hang onto the stock as long as they think that it's a good investment for their fund (i don't know when this means they sell it, but it's not necessarily immediately after IPO). Companies get in trouble when they are having trouble growing revenue. Investors will quickly push for them to transition to an income stock if they lose confidence in the company's ability to continue to grow. This is because in order for the stock price to not drop revenue has to keep increasing or the company has to become profitable enough to justify its stock price when considered as an income stock. Twitter wants to remain a growth stock, but investors want to see increasing revenue for that. Since twitter can't do that, it's got to focus on increasing profitability by cutting expenses. I left off value stocks so far. Essentially, if you fuck up the transition from growth to income stock for a business unit or you fuck up identifying new markets to grow into, your stock price will go down accordingly. If people think that this was a mistake that the company can correct and learn from, then they will see the price as undervalued compared to how they think the company will perform. This belief that the market has overreacted is what allows people to consider a certain stock a value stock.

gozur88 10y ago

>Why can't Twitter just be happy being Twitter, knowing its limits and making a stable profit? The short answer? Because they don't make money. I guess it's possible you could grow your company to a point where you say "Okay, we've filled our niche. Growing more doesn't make sense, so we'll just extract as much cash as we can." The problem is you have to make money to do that. Twitter doesn't make money and never has. They can say "Well, we're still growing, and that costs money, but at some point we'll monetize that growth and make tons of money," but it's only credible as long as they're growing.

enraged_camel 10y ago
I think they have good revenue, but their insanely high expenses (coming mostly from the high number of employees, but probably other things that assume hyper growth too) make it impossible to turn a good profit.
- dbbk 10y ago
  They have just under 4,000 employees and spent $2.7 billion last year. Surely that can't be just it?
artursapek 10y ago
I think if Twitter settled down and optimized they could probably be making a healthy profit. That's sort of what I was getting at in my OP.
- gozur88 10y ago
  I doubt they can do it. We'll see.

StanislavPetrov 10y ago

> why do so many companies feel like they have to grow perpetually? Because, in a nutshell, the "economy" is a massive ponzi scheme that depends on constant growth. This isn't a popular opinion among many of the VC crowd that believe in the myth of the meritocracy, but its an irrefutable truth. For example, the FED (and other central banks) set a target inflation rate (usually around 2%, but it can vary). That means if you are "stable", and the central bank has its way, you are actually shrinking. Its obviously much more complex then this, but that is the crux of it. Unfortunately "sustainability", whether economic or environmental, isn't a priority for those .000001% of the oligarchs that run the show and make their money off debt servicing.

guelo 10y ago
> That means if you are "stable", and the central bank has its way, you are actually shrinking at 2% a year. No, inflation means, in aggregate, the price businesses charge goes up.
- StanislavPetrov 10y ago
  That's completely wrong. Its a lost cause to try to explain economic theory on a forum but suffice to say that central banks factor completely arbitrary variables to get the number they want. http://www.bls.gov/cpi/cpihqaitem.htm http://www.bls.gov/cpi/cpihqaitem.htm >The CPI is calculated using prices for a fixed basket of goods and services through time. While the basket is periodically revised to reflect changing consumer expenditures, some items being priced in the sample come and go from the marketplace, making collection of these prices from month to month difficult. When an item is no longer available in the marketplace, a similar replacement item is selected. Often there are no similar items from which to choose, and as a result, a less comparable item is selected, potentially introducing quality change and an associated price differential into the index. The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item. That toilet paper you used to buy costs twice as much? Well the FED says the new toilet paper is of a higher quality, so it is actually counted as being lower priced then the toilet paper you bought for half as much last year.

rs999gti 10y ago

> why do so many companies feel like they have to grow perpetually? Public companies have investors and those investors who have put in capital (money or time) either in the beginning or during operations expect a return on their investment. The company taking the investment keeps selling shares to get more capital getting them stuck on a ROI treadmill. The only way to escape the ROI treadmill is to self-fund from operations profits and not take outside investments. Unfortunately many of these startups depend on debt to keep operations going.

ChuckMcM 10y ago

Simple answer: net marginal customer revenue. I'm not sure if that is an accounting term but I've seen it used in similar situations to describe how the business model works, or doesn't work. It goes kind of like this: Lets say that 1 SRE engineer, 1/4th developer, 1/3rd customer support agent, and 1/10th of a manager can support 10,000 users. (all made up numbers of course for this example). You can't really cut up manager's in 10ths so you really need 10x this to have 10 SRE engineers,4 developers, 3 customer support agents, and 1 manager. So that is 100,000 users. But the cost of all those people don't bring in enough revenue from those users. But there is a "scaling" effect, such that if you have twice that many people, instead of 200,000 users you can support 225,000 users. Four times and instead of 450,0000 users you can support 500,000 users. So the trick is to find the point in the model where you have enough users to make enough revenue to pay for all those people, and the hardware that supplies the service. At that point you're "break even", and then if you can push past it, you start generate cash above what you need, or net profit. The more you can grow, the more net cash you can generate, and the "value" of your company, is typically a function on your earnings before you start paying taxes, and costing depreciation (EBITDA). A web business like Twitter's (or Facebook's for that matter) then can be valued based on how many users they have and the revenue per thousand user metrics they can drive minus the cost per thousand users. If you stop growing before your generating net income, you die. So there is a minimum you have to hit. And if you're well managed, you are constantly trying to minimize costs and maximize revenue to get a bigger income factor. Here is another issue, generally, like with "blade computers" you get the most money by having just enough people and resources to handle all of your load. When you anticipate growth, if you build out more resources and that growth doesn't come, your stuck with the costs. Like having a computing blades chassis with just one blade in it. A really expensive computer. So you back off and lay off those folks you hired to get your costs back under control so you don't lose a ton of money. Again, a well managed company will attempt to grow without hiring resources right up until they can't grow any further, and then hire. So that when the next tranche of people show up, you are ideally already net positive on income, just not by as large a margin as you used to be. At the end of the day you're managing costs, user growth, and revenue per user. If you can't juggle all three you run a high risk of becoming an acquisition by someone who can.

messel 10y ago

You nailed it, taking investor money and being guided by it to grow until your business breaks. Really appreciate your last paragraph.

koliber 10y ago

On a longer timeframe, if you don't grow, you die. Scenario time... Let's say I have a company that is growing pretty well. After some time, I feel the easy growth stops. Let's say this is the "right size" point you are alluding to, and I was able to recognize it, spot on. I stop hiring and just work with the existing resources that I have. In theory everything should be good for a long time. Unfortunately, I do not exist in a vacuum. I have competition, and this competition continues to expand. Eventually, if they continue to invest and grow, even past their "right size", they will take away my market share. As they grow stronger, I will grow weaker. This may cause my company to lose enough sales that I will have to fire people. The fallacy is that there is a "right size" that will continue to be the "right size" through time. A market is a dynamic system that does not stand still. What was the right size at one point, may be too large or too small in the future, due to things beyond my direct control. As a smart businessman, I have to understand this. I have to expand when there is room, and try to outperform the competition when the market is crowded. I need to downsize when the time is right to protect the rest of the business. What you are saying is easier done on a smaller scale. There are many so-called "lifestyle" businesses which live by a philosophy that is closer to yours and farther from Twitter's. On a global scale, it much more difficult to follow the "lifestyle" business philosophy and succeed.

B1FF_PSUVM 10y ago
> I have competition, and this competition continues to expand. Fallacy is here.

janeFondler 10y ago

Because Twitter has received investment on the promise of eventual profit. A low / no growth model is only feasible if they don't have investors / shareholders bucking for returns at every decision point. Twitter, has made a deal with the devil in becoming a publicly traded company because at some point needs to show their stakeholders a path to profitability. Job cuts, cutting expenditure whilst hopefully maintaining profits, are a good way to demonstrate this. If Twitter wants to become a public internet utility, like wikipedia, existing investors will demand something like a share buyback, how will Twitter afford this without a period of profitability? Finding a sugar daddy to buy them out is one option but the recent sutors probably felt that twitter stock is overvalued, largely because of the lack of profits.

jomamaxx 10y ago
It is not 'making a deal with the devil' to take other people's money on the basis that you'll return a certain amount of profit - and then not do so. The 'devil' it would seem are the Twitter founders, who took investors money on false premises. So Twitter has hit a ceiling, they are making adjustments, which sadly are op cuts. If they want to hire more people than can grow their numbers.

blahblah3 10y ago

Growth comes from reinvestment of capital into the business. This makes sense from a shareholder perspective when the risk-adjusted return on this invested capital outweighs the returns capital could get elsewhere (other stocks). Some companies will actually stop growing and start paying dividends/sharebuybacks for this reason.

rebelidealist 10y ago

When you get institutional investors your shareholders becomes liquid. When a company goes public, new shareholders (banks, funds, individuals) want growth FOREVER.

dboreham 10y ago

Because money people expect the second derivative to be positive (because they only make money if that's the case).

JustSomeNobody 10y ago

Quarterly Earnings Reports. Companies have to report earnings quarterly. Investors expect quarterly growth. If they don't get it they punish the company.

awkward 10y ago

The VC answer is good, but I think growth is necessary to sustain the social part of a social network as well. I joined Twitter very late, to get news when the Boston marathon bombing was happening, and while the feeling that twitter is a forum that covers the whole internet is still there, it's at late stages. Most people are well and truly over the idea that twitter is worthwhile in and of itself, and most people are pretty much following as many people as they want to be. It's much more likely that long time users are cutting down on follows than adding new ones. It still has a culture where you can talk to strangers on the internet, but a pretty big etiquette has grown up around that, and that can also be intimidating coming in late.

maxt 10y ago

> Dr. Srikumar created a life changing business school course so powerful that it has its own alumni association. He is the author of Happiness at Work and has helped thousands of executives find greater fulfillment in both life and work. https://www.youtube.com/watch?v=bGBoXTaitr0 https://www.youtube.com/watch?v=bGBoXTaitr0 Worth watching because his words of advice did help me when trying to grow my own business. I didn't reach my numbers, but having a goal gave me a sense of direction, and there was a sense of movement. I think we're only at a loss in business when everything falls still. I'm no expert, but I don't sense that Twitter is falling still just yet, and there's still movement. As you said: "Why can't Twitter just be happy being Twitter". I can't imagine the web without Twitter and it still feels like some sort of plumbing, or public utility at this stage. Twitter is there like water (hopefully). You turn on the tap, and it's there like water.

quxbar 10y ago
I have to point out that this last point is totally ridiculous. Twitter is functionally just like like Xanga or Livejournal or any other dead blogging platform you care to name. Just because you have a community of dedicated users and a better UI doesn't mean the service is unique. It's as if you thought Evian(R) or Dasani(TM) are public utilities. Frankly, I think we're going to see a backlash against information overload - social media has lost its novelty, and most consumers need far less of it than the producers want to provide.
- VLM 10y ago
  "than the producers want to provide" Yes this is the analogy to TV where the market provided precisely 3 channels (plus PBS) for decades and a third of the population reliably watched each show on each channel, but that was 1970 and now in 2010s there's 500 cable channels and a wildly success narrowcast might reach as many as 1 in 40 citizens. Usually far less, of course, as little reach as 1 in 300 is possible with aggressive enough advertising budgets. Of course there is the superbowl but its only a couple hours per year and there's only one and that one is already here. It has certain implications for future startups. It would be doom for current startups that financed assuming they'll be the one site that all 6 billion humans use. If the social media market follows the TV model, in 20 years we'll be back to multiple tribal sized BBSes, more or less, with the occasional temporary cultural fad resulting in short term scaling headaches. For about a month, about a billion of us, will try to simultaneously log into the pokemon go server, then we'll all try to forget it ever happened, which actually is a big enough problem to keep many engineers employed. I'm not sure the financial markets know what to think of legacy TV right now, much less what will, by then, be legacy social media. How do you finance or account for a one month pokemon go, times hundreds per year, when thats the new normal not an aberration?

robbiemitchell 10y ago

Bear in mind: Twitter has lost money (billions) over its lifetime, let alone failed to multiply the investment. More: http://money.cnn.com/2016/03/21/technology/twitter-10th-anniversary/ http://money.cnn.com/2016/03/21/technology/twitter-10th-anni...

drakonandor 10y ago
That mindset is prevalent in people who can't understand any business being more valuable than a lemonade stand (preferably cardboard, so you can profit from day 1).

code_sardaukar 10y ago

You say that it's very sad for people to lose their jobs, but how sad is it if a business does not grow as fast as it might have, and so doesn't employ those people in the first place?

jeffthespasm 10y ago

This is comforting to read, because I was beginning to think I was the only one with that particular dream. I hope we both do it. Cheers!

__derek__ 10y ago

Related to your point about your ideal sort of business, I enjoyed reading Rand Fishkin's reflections on his experience with Moz. On raising money[1]: > As a result, the behavior VCs generally need to encourage is growth at any cost. If a company burns out trying to become that 100X star in the portfolio, it’s OK. But if they choose to grow slow and steady and build a sustainable but not particularly dominant business over 10–15 years, that’s non-ideal for the portfolio or the fund’s returns. [1]: https://medium.com/@randfish/what-id-change-keep-the-same-don-t-yet-know-c56953979e24#51a1 https://medium.com/@randfish/what-id-change-keep-the-same-do...