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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 g

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.
    - tossaway1 10y ago
      That's what "punishing" means when people use it in the context of stock prices.
      - harryh 10y ago
        Ya I know. I just don't like it because of the moral context that normally comes with that word. I hear you though.
- ryanSrich 10y ago
  Well yeah. "They" would be fired, and new leadership would be brought in to do better. When you're reporting to the board or shareholders they run the show. And they want more money.
- jamesroseman 10y ago
  It's murky, and depends entirely on how concretely they made those promises. To me, common sense should dictate no, but to others, it might [1]. (Story covers lawsuit against Twitter for misleading shareholders on user growth numbers). [1] http://www.bloomberg.com/news/articles/2016-09-17/twitter-sued-by-investor-for-failing-to-deliver-on-user-growth http://www.bloomberg.com/news/articles/2016-09-17/twitter-su...
- deleted 10y ago
  [deleted]
- hibikir 10y ago
  Companies stop growing all the time: it happens all the time, and no company grows forever. A stock price is not just the value of a company's business today: It has future growth and risk priced in. What the stock market has been saying to Twitter is that the public believes that Twitter's ceiling is far lower than we thought in 2014. In practice, this says that all the bets on hypergrowth were wrong, and the company must adapt: The stock grants that looked competitive before don't look competitive today, so top engineers leave. Staffing plans designed to keep a system operable at 10x of Twitter's current volume stop making sense, so projects change, and people are laid off. So this has nothing to do with liability to promises (they've already IPO'd), but with the pain of becoming a less promising company. Twitter is too important to disappear in the near term; all you have to do is look at how big they are for journalists and presidential candidates to figure that out. There is, however, an opportunity for someone to make a competing product that fits the same needs and is easier to monetize.
  - kmonsen 10y ago
    If they are staying stable, do they really need those top engineers? The probably need a different set of engineers who can find a cheaper way of doing what they are already doing.
    - yeukhon 10y ago
      Staying stable finanically is okay, but staying stable and no optimization (better algorithms) might hurt. Hiring good engineers is surprisingly expensive and hard.
- throwthisawayt 10y ago
  They are liable in the sense that they report to a board chosen by their investors. So if I bought or invested in company XYZ at a valuation that assumed a lot of growth and company XYZ suddenly stopped pursuing that growth I would probably vote out current management. So yes most companies are beholden to investors; don't raise money if you don't want a new boss.
  - criddell 10y ago
    > I would probably vote out current management That presumes that you think new management could successfully grow the company. Twitter's growth might be done.
- iampims 10y ago
  They aren't liable for the "S-1 promises" as long as they clearly mentioned the risks in the appropriate section. Their main responsibility at this point is to satisfy the shareholders, and given their limited growth is not an easy feat.
- mdasen 10y ago
  They are not contractually obligated to grow at a certain rate. However, if the majority of your shareholders are members of the public looking to earn a return, they're your boss. You might be CEO, but if your priorities aren't their priorities, they'll replace you. Even if you own the majority voting control in the company, there's a certain amount of good-faith effort you need to put into growing the profits of the company. In most jurisdictions, a public for-profit company is organized with the belief that the company exists to create as much profit as it reasonably can and shouldn't be operating in a way that avoids that. That doesn't mean doing scummy things or things that might realize short-term profits at the expense of the brand, but sometimes it becomes clear that a company is no longer operating with its (potentially minority) shareholders in mind. There's actually a type of corporation that specifically notes that maximizing profit isn't the goal of the enterprise (https://en.wikipedia.org/wiki/Benefit_corporation https://en.wikipedia.org/wiki/Benefit_corporation). Twitter could have been formed as a B-Corporation and told its investors that it might make profit, but that profit wasn't its only goal. But the thing is that Twitter isn't just making too little money. It's losing money. It would be like a coffeeshop that sold coffee for 10¢ a cup with 50,000 customers/mo and rent of $8,000/mo. They'd bring in $5,000 from their customers and be $3,000 in the hole at the end of the month. Now, there are a few ways to change that situation. 1) Get more money per customer. Twitter could sell more or better ads or you could give them money. That's hard. 2) Get more users. If Twitter earns $X/user/month in revenue and they're able to get double the number of users, that's double the revenue. If costs don't go up linearly with users, their situation will get better. If the coffeeshop gets 100,000 customers/mo, they'd be making $2,000/mo. 3) Twitter can lower costs. They can fire excess employees working on marginal projects; they can get rid of app features that might be computationally expensive to deliver. The issue with many startups isn't always growth or investors, but even keeping one's head above water. Now, even if Twitter can keep its head above water, is that enough? If Twitter became a non-profit and just advertised itself as a public service to the world, would that be enough to keep users around? So many companies are gunning to take down Twitter. Would Twitter survive if it slimmed down its staff and just kept Twitter alive? Would users migrate to other services that offered new, cool things? I feel like Wikipedia is the only really high-traffic non-profit, but they're doing something that requires a lot less engineering (ie. most of the page can be easily cached and is the same for all users vs. Twitter). The thing is that it's hard to bootstrap services with huge network effects like Facebook or Twitter and keep a small staff. It's often a winner-take-all (or most) market. Remember Pownce? Probably not. There were lots of microblogging companies and Twitter destroyed them all. To do that, they needed to staff-up as you handle scaling issues and add features. Once you're big, you want to keep focusing on growth since layoffs are demoralizing and if you stop growing, what's to stop a new company from coming along and knocking you off? It's easy to think that Twitter could be run with less of an eye for growth or profit, but given that it's losing money right now and that can't continue forever, it at least needs to get to a head-above-water place. The most promising ways of getting there are things like getting more users, cutting costs like staff, and figuring out how to get more revenue per current user. In fact, one could argue that the layoffs are part of Twitter not prizing growth above all else. They're trading growth (that could be driven by those employees) for cost (the salaries of those employees). Twitter is going the route of the less-growth, slimmed-down company looking to just keep chugging along. But even then, Twitter needs to get its head above water and this is kinda part of that (unfortunately).
AtheistOfFail 10y ago
The issue is one simple item: "When you take someone's money, their priorities are now your priorities" If you can bootstrap your business with 30k and make a 20k profit every month, then why do you need 1 million dollars from investors? When you take the money, it's just a golden handcuff and ties you to that person for the future. If your business lasts longer than 20 years, that may as well be an additional marriage with kids.
- aub3bhat 10y ago
  Because your competitor can raise those million dollars, and eventually your 20k profit per month becomes 20k loss per month. You can build all your imaginary arguments about magical businesses that make 20k profit per month while being self-sustained with holocracy, cruelty free, authentic, organic etc. etc. But the reality is that doing big things at bigger scale requires huge capital. If you are willing to pass up on it, someone else will take it and gladly outspend / outmaneuver your. You will watch as your paid product will lose to a freemium one, and as you will write "our incredible journey blogpost", commenters here will mock you for selling out / giving up.
  - vtlynch 10y ago
    This is simply not true. Perhaps its significantly more true for certain industries - especially Saas and similar software. But even then it is no rule.
  - danieltillett 10y ago
    I run a bootstrapped SAAS business and I make far more than $20K a month profit and have done so for years. The key is choose a niche that is large enough to make the level of profit you want, but too small to attract VC funded competitors. The sort of market size you want is in the range of $5 to $20 million per year. Big enough to be worth the hassle, but too small to attract the big guys.
    - meddlepal 10y ago
      This. There is always a niche. Some people just don't want to use the other offerings for XYZ reasons.
Buge 10y ago
But if they IPO, then the early investors already got their money back. And startups get acquired all the time, also putting an end to investors' growth.
branchless 10y ago
And what should also concern people about this is that our entire issuance of money as debt demands constant growth ahead of interest rates. Or you can have a time where you continually cut rates, print and call it growth, until you get to zero and it all falls apart. I'm not sure either are a good outcome from a bad idea. I'll also put my other question in this post seeing as I have tripped the HN rentier alerts by using words that may upset our parasitic rentier VC gods, leading to the weasel "you're submitting too fast" after one post. What is patio-11 ?
- viraptor 10y ago
  > What is patio-11 ? https://news.ycombinator.com/user?id=patio11 https://news.ycombinator.com/user?id=patio11
ThomPete 10y ago
It's bigger than that though. The real issue is that they don't have a choice because as long as they aren't profitable they need to find a way to fund the operation. In many ways VC funding is the worst and shouldn't be applied to most companies.
- deleted 10y ago
  [deleted]
beedogs 10y ago
Well then they're pretty much doomed to failure. There's only so much blood you can squeeze out of a 140-character stone.
Angostura 10y ago
I was at a startup in the UK before the first dotcom bust and we took VC money. It was extraordinary. A key metric that the VCs seemed to be interested in was head-count. We had this system that effectively acted as a trading exchange and I was sitting there saying 'hang on guys, with a little bit of work, this can pretty much be automated and you can sit back and watch the money roll in' but there was tremendous pressure to keep hiring people to demonstrate growth. I was not very young - but clearly naive.
- TylerH 10y ago
  Measuring company growth by number of people employed is a clear indicator of why the dotcom bust was a bust.
potel576 10y ago
What I find ironic about this is that if they actually tried to be a Toyota Corolla, they might have given off the perception of being a Porsche. Even if they didn't give off the perception, they would have at least put money in shareholders' pockets.

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.
  - tossaway1 10y ago
    That's what "punishing" means when people use it in the context of stock prices.
    - harryh 10y ago
      Ya I know. I just don't like it because of the moral context that normally comes with that word. I hear you though.
ryanSrich 10y ago
Well yeah. "They" would be fired, and new leadership would be brought in to do better. When you're reporting to the board or shareholders they run the show. And they want more money.
jamesroseman 10y ago
It's murky, and depends entirely on how concretely they made those promises. To me, common sense should dictate no, but to others, it might [1]. (Story covers lawsuit against Twitter for misleading shareholders on user growth numbers). [1] http://www.bloomberg.com/news/articles/2016-09-17/twitter-sued-by-investor-for-failing-to-deliver-on-user-growth http://www.bloomberg.com/news/articles/2016-09-17/twitter-su...
deleted 10y ago
[deleted]
hibikir 10y ago
Companies stop growing all the time: it happens all the time, and no company grows forever. A stock price is not just the value of a company's business today: It has future growth and risk priced in. What the stock market has been saying to Twitter is that the public believes that Twitter's ceiling is far lower than we thought in 2014. In practice, this says that all the bets on hypergrowth were wrong, and the company must adapt: The stock grants that looked competitive before don't look competitive today, so top engineers leave. Staffing plans designed to keep a system operable at 10x of Twitter's current volume stop making sense, so projects change, and people are laid off. So this has nothing to do with liability to promises (they've already IPO'd), but with the pain of becoming a less promising company. Twitter is too important to disappear in the near term; all you have to do is look at how big they are for journalists and presidential candidates to figure that out. There is, however, an opportunity for someone to make a competing product that fits the same needs and is easier to monetize.
- kmonsen 10y ago
  If they are staying stable, do they really need those top engineers? The probably need a different set of engineers who can find a cheaper way of doing what they are already doing.
  - yeukhon 10y ago
    Staying stable finanically is okay, but staying stable and no optimization (better algorithms) might hurt. Hiring good engineers is surprisingly expensive and hard.
throwthisawayt 10y ago
They are liable in the sense that they report to a board chosen by their investors. So if I bought or invested in company XYZ at a valuation that assumed a lot of growth and company XYZ suddenly stopped pursuing that growth I would probably vote out current management. So yes most companies are beholden to investors; don't raise money if you don't want a new boss.
- criddell 10y ago
  > I would probably vote out current management That presumes that you think new management could successfully grow the company. Twitter's growth might be done.
iampims 10y ago
They aren't liable for the "S-1 promises" as long as they clearly mentioned the risks in the appropriate section. Their main responsibility at this point is to satisfy the shareholders, and given their limited growth is not an easy feat.
mdasen 10y ago
They are not contractually obligated to grow at a certain rate. However, if the majority of your shareholders are members of the public looking to earn a return, they're your boss. You might be CEO, but if your priorities aren't their priorities, they'll replace you. Even if you own the majority voting control in the company, there's a certain amount of good-faith effort you need to put into growing the profits of the company. In most jurisdictions, a public for-profit company is organized with the belief that the company exists to create as much profit as it reasonably can and shouldn't be operating in a way that avoids that. That doesn't mean doing scummy things or things that might realize short-term profits at the expense of the brand, but sometimes it becomes clear that a company is no longer operating with its (potentially minority) shareholders in mind. There's actually a type of corporation that specifically notes that maximizing profit isn't the goal of the enterprise (https://en.wikipedia.org/wiki/Benefit_corporation https://en.wikipedia.org/wiki/Benefit_corporation). Twitter could have been formed as a B-Corporation and told its investors that it might make profit, but that profit wasn't its only goal. But the thing is that Twitter isn't just making too little money. It's losing money. It would be like a coffeeshop that sold coffee for 10¢ a cup with 50,000 customers/mo and rent of $8,000/mo. They'd bring in $5,000 from their customers and be $3,000 in the hole at the end of the month. Now, there are a few ways to change that situation. 1) Get more money per customer. Twitter could sell more or better ads or you could give them money. That's hard. 2) Get more users. If Twitter earns $X/user/month in revenue and they're able to get double the number of users, that's double the revenue. If costs don't go up linearly with users, their situation will get better. If the coffeeshop gets 100,000 customers/mo, they'd be making $2,000/mo. 3) Twitter can lower costs. They can fire excess employees working on marginal projects; they can get rid of app features that might be computationally expensive to deliver. The issue with many startups isn't always growth or investors, but even keeping one's head above water. Now, even if Twitter can keep its head above water, is that enough? If Twitter became a non-profit and just advertised itself as a public service to the world, would that be enough to keep users around? So many companies are gunning to take down Twitter. Would Twitter survive if it slimmed down its staff and just kept Twitter alive? Would users migrate to other services that offered new, cool things? I feel like Wikipedia is the only really high-traffic non-profit, but they're doing something that requires a lot less engineering (ie. most of the page can be easily cached and is the same for all users vs. Twitter). The thing is that it's hard to bootstrap services with huge network effects like Facebook or Twitter and keep a small staff. It's often a winner-take-all (or most) market. Remember Pownce? Probably not. There were lots of microblogging companies and Twitter destroyed them all. To do that, they needed to staff-up as you handle scaling issues and add features. Once you're big, you want to keep focusing on growth since layoffs are demoralizing and if you stop growing, what's to stop a new company from coming along and knocking you off? It's easy to think that Twitter could be run with less of an eye for growth or profit, but given that it's losing money right now and that can't continue forever, it at least needs to get to a head-above-water place. The most promising ways of getting there are things like getting more users, cutting costs like staff, and figuring out how to get more revenue per current user. In fact, one could argue that the layoffs are part of Twitter not prizing growth above all else. They're trading growth (that could be driven by those employees) for cost (the salaries of those employees). Twitter is going the route of the less-growth, slimmed-down company looking to just keep chugging along. But even then, Twitter needs to get its head above water and this is kinda part of that (unfortunately).

AtheistOfFail 10y ago

The issue is one simple item: "When you take someone's money, their priorities are now your priorities" If you can bootstrap your business with 30k and make a 20k profit every month, then why do you need 1 million dollars from investors? When you take the money, it's just a golden handcuff and ties you to that person for the future. If your business lasts longer than 20 years, that may as well be an additional marriage with kids.

aub3bhat 10y ago
Because your competitor can raise those million dollars, and eventually your 20k profit per month becomes 20k loss per month. You can build all your imaginary arguments about magical businesses that make 20k profit per month while being self-sustained with holocracy, cruelty free, authentic, organic etc. etc. But the reality is that doing big things at bigger scale requires huge capital. If you are willing to pass up on it, someone else will take it and gladly outspend / outmaneuver your. You will watch as your paid product will lose to a freemium one, and as you will write "our incredible journey blogpost", commenters here will mock you for selling out / giving up.
- vtlynch 10y ago
  This is simply not true. Perhaps its significantly more true for certain industries - especially Saas and similar software. But even then it is no rule.
- danieltillett 10y ago
  I run a bootstrapped SAAS business and I make far more than $20K a month profit and have done so for years. The key is choose a niche that is large enough to make the level of profit you want, but too small to attract VC funded competitors. The sort of market size you want is in the range of $5 to $20 million per year. Big enough to be worth the hassle, but too small to attract the big guys.
  - meddlepal 10y ago
    This. There is always a niche. Some people just don't want to use the other offerings for XYZ reasons.

Buge 10y ago

But if they IPO, then the early investors already got their money back. And startups get acquired all the time, also putting an end to investors' growth.

branchless 10y ago

And what should also concern people about this is that our entire issuance of money as debt demands constant growth ahead of interest rates. Or you can have a time where you continually cut rates, print and call it growth, until you get to zero and it all falls apart. I'm not sure either are a good outcome from a bad idea. I'll also put my other question in this post seeing as I have tripped the HN rentier alerts by using words that may upset our parasitic rentier VC gods, leading to the weasel "you're submitting too fast" after one post. What is patio-11 ?

viraptor 10y ago
> What is patio-11 ? https://news.ycombinator.com/user?id=patio11 https://news.ycombinator.com/user?id=patio11

ThomPete 10y ago

It's bigger than that though. The real issue is that they don't have a choice because as long as they aren't profitable they need to find a way to fund the operation. In many ways VC funding is the worst and shouldn't be applied to most companies.

deleted 10y ago
[deleted]

beedogs 10y ago

Well then they're pretty much doomed to failure. There's only so much blood you can squeeze out of a 140-character stone.

Angostura 10y ago

I was at a startup in the UK before the first dotcom bust and we took VC money. It was extraordinary. A key metric that the VCs seemed to be interested in was head-count. We had this system that effectively acted as a trading exchange and I was sitting there saying 'hang on guys, with a little bit of work, this can pretty much be automated and you can sit back and watch the money roll in' but there was tremendous pressure to keep hiring people to demonstrate growth. I was not very young - but clearly naive.

TylerH 10y ago
Measuring company growth by number of people employed is a clear indicator of why the dotcom bust was a bust.

potel576 10y ago

What I find ironic about this is that if they actually tried to be a Toyota Corolla, they might have given off the perception of being a Porsche. Even if they didn't give off the perception, they would have at least put money in shareholders' pockets.