5 ms·

I agree with the idea that venture capitalists alter ("distort" is a loaded term) the market in their favor. That's part of the natural process of systems commo

by dsacco 10y ago

I agree with the idea that venture capitalists alter ("distort" is a loaded term) the market in their favor. That's part of the natural process of systems commoditizing their complements. But I really think that you characterize this in an uncharitable way with your example, which I have difficulty believing as it was stated. If your lead really understood that they would "immediately earn a 5x return with no risk", and that was the truth, they would be cartoonishly foolish to not take that offer. Furthermore, wouldn't that mean your company could be printing money with its results? It's hard for me to believe a rational customer wouldn't take that deal, so either they didn't understand or believe that would be the result, or you're exaggerating here for the benefit of your point. I know it's easy to think I'm just griefing you over this, but I'm trying to make a point in good faith. There are certainly legitimate reasons to dislike the profit incentives that venture capitalists encourage, but I think you portray their impact on small companies as unrealistically bad (and perhaps your product in a more favorable light than is warranted), to the detriment of a discussion about it. None of this is personal, mind you. Just a comment.

josho 10y ago
Yes, I purposely choose colourful language. Github is an amazing product, in part because they had $66M to spend making it amazing. Think about all of our other favourite pieces of software, and many will have the same story. This results in the marketplace having unrealistic expectations for software quality when the market size won't sustain VC levels of investment. Regarding your disbelief, you assume (like economists) that consumers are rational actors. They aren't. There are 2 reasons why the customer pushed back. One, they thought the price was unfair--e.g. "Hey MS Office costs me $5/mth, and your software which does less costs me several hundred a month, you charge too much." Second, the customer is already earning a significant salary, so an extra $5,000 a year isn't meaningful for him. (Yeh, crazy isn't it). This is our first sales effort and we are learning how to position the product to overcome these objections--part of the problem was that we didn't anticipate push back and didn't properly position the product to avoid these concerns.
- dsacco 10y ago
  I don't assume that consumers are rational actors, at least not in the aggregate or binary sense that the term is usually used. Theories involving rational actors usually use the terminology in groups, whereas I'm talking about an individual customer and using rationality as more of a sliding scale with percentiles. In this case, it seemed incredible to me that someone would be so irrational on that scale. However, you did clarify your example, which makes it easier to accept. Phrased this way, it seems as though a potential upside of $5,000 wasn't worth it for someone who is skeptical of your product and has free alternatives. Stated this way, I can understand how VCs cause market incentives that make your job more difficult.
- m1sta_ 10y ago
  Consumers are rational. They aren't unlimited in their ability to source and process information. We're not very good at understanding their behaviour.
gizmo 10y ago
Perhaps you live in a world different from mine, but what you describe as "cartoonishly foolish" behavior I consider completely standard. Customers refuse to spend 5000 to make 20.000 all the time, or they're willing to waste weeks finding a different vendor that can offer the same for 3000. Others are willing to walk away from a great deal unless they get a discount, but are content with a tiny discount. Because a discount to them signifies a moral victory, or that they're not being taken advantage of, or they simply want to believe they're great negotiators or something like that. I don't get it, but I have seen it often enough for it not to be unusual. We don't live in a world of rational agents. And even if we did we don't live in a world where most business purchases are made with people's own money. People have complex and contradictory goals and in my experience pointing out the value customers get for the price they pay is the least effective sales strategy.
- chrisabrams 10y ago
  I live in the same world as you. My business has a proven model for digital publishers that generally increases their yield 2-4x yet they refuse to spend the percentage needed to make the deal happen. Sometimes pride can be so large...spend 5k to make 50k? No thanks..lol
  - softawre 10y ago
    > generally increases their yield 2-4x > spend 5k to make 50k I'm sure it has nothing to do with people making numbers up.
  - josho 10y ago
    Have you had success overcoming that? I suspect a rational counter won't win over an irrational objection. But will an irrational plea (eg play to their ego) work?
  - inthewoods 10y ago
    As someone who has operated in the world of digital advertising, this may have more to do with the fact that so much bullshit has been slung at both advertisers and publishers that there is an incredible amount of skepticism about advertising products.
Spooky23 10y ago
People do stupid shit like this all of the time. Folks are trained to get many types of products for free. I've seen similar cases where businesses refuse to pay for things like licensed information that have a clear and obvious value.
- dsacco 10y ago
  Clear and obvious to who? What makes you believe this is not a Dunning-Kruger effect on your part? Do the customers have the same special insight you do? Most importantly, is it more likely that you're not as well informed as you think you are, that you don't fully understand the competing priorities at play, or that the business is actually being stupid, as you say?
  - Spooky23 10y ago
    Thanks for the message board psychological analysis. In the example that I was loosely referring to, and are not at liberty to discuss in further detail, companies must pay to be qualified to bid on a specific type of business. Firms that license some specific information are far more likely (on the order of 50%) to successfully bid. This information is clearly disclosed to them when they get qualified. So they make a voluntary, significant investment to participate in a process, and then fail to take a simple step that would make them far more likely to make money. I call that dumb, but perhaps I am in fact too incompetent to make that assessment.
    - dsacco 10y ago
      Sorry, I don't mean to provide an armchair psychological insight here. I'm just trying to play devil's advocate. While in your specific case your position might be justified, I think there's value in pointing out that many misunderstandings about customer behavior are due to Dunning-Kruger on the part of people selling them things :)
- danielweber 10y ago
  Because once I need to pay for something, I need to get my boss's approval, and then he's going to ask all these stupid questions. (Not me specifically, but I've been there in past places.)
lmm 10y ago
Do you believe that "dumping" in the hopes of obtaining a monopoly is a real thing that happens or at least happened? (e.g. Standard Oil) Leaving aside the question of what their intentions are, do VCs do something economically equivalent? And now bringing back intentions, if the economic effects (and the resulting impact on customers) are the same, does the intention matter?

by dsacco 10y ago

josho 10y ago

Yes, I purposely choose colourful language. Github is an amazing product, in part because they had $66M to spend making it amazing. Think about all of our other favourite pieces of software, and many will have the same story. This results in the marketplace having unrealistic expectations for software quality when the market size won't sustain VC levels of investment. Regarding your disbelief, you assume (like economists) that consumers are rational actors. They aren't. There are 2 reasons why the customer pushed back. One, they thought the price was unfair--e.g. "Hey MS Office costs me $5/mth, and your software which does less costs me several hundred a month, you charge too much." Second, the customer is already earning a significant salary, so an extra $5,000 a year isn't meaningful for him. (Yeh, crazy isn't it). This is our first sales effort and we are learning how to position the product to overcome these objections--part of the problem was that we didn't anticipate push back and didn't properly position the product to avoid these concerns.

dsacco 10y ago
I don't assume that consumers are rational actors, at least not in the aggregate or binary sense that the term is usually used. Theories involving rational actors usually use the terminology in groups, whereas I'm talking about an individual customer and using rationality as more of a sliding scale with percentiles. In this case, it seemed incredible to me that someone would be so irrational on that scale. However, you did clarify your example, which makes it easier to accept. Phrased this way, it seems as though a potential upside of $5,000 wasn't worth it for someone who is skeptical of your product and has free alternatives. Stated this way, I can understand how VCs cause market incentives that make your job more difficult.
m1sta_ 10y ago
Consumers are rational. They aren't unlimited in their ability to source and process information. We're not very good at understanding their behaviour.

gizmo 10y ago

Perhaps you live in a world different from mine, but what you describe as "cartoonishly foolish" behavior I consider completely standard. Customers refuse to spend 5000 to make 20.000 all the time, or they're willing to waste weeks finding a different vendor that can offer the same for 3000. Others are willing to walk away from a great deal unless they get a discount, but are content with a tiny discount. Because a discount to them signifies a moral victory, or that they're not being taken advantage of, or they simply want to believe they're great negotiators or something like that. I don't get it, but I have seen it often enough for it not to be unusual. We don't live in a world of rational agents. And even if we did we don't live in a world where most business purchases are made with people's own money. People have complex and contradictory goals and in my experience pointing out the value customers get for the price they pay is the least effective sales strategy.

chrisabrams 10y ago
I live in the same world as you. My business has a proven model for digital publishers that generally increases their yield 2-4x yet they refuse to spend the percentage needed to make the deal happen. Sometimes pride can be so large...spend 5k to make 50k? No thanks..lol
- softawre 10y ago
  > generally increases their yield 2-4x > spend 5k to make 50k I'm sure it has nothing to do with people making numbers up.
- josho 10y ago
  Have you had success overcoming that? I suspect a rational counter won't win over an irrational objection. But will an irrational plea (eg play to their ego) work?
- inthewoods 10y ago
  As someone who has operated in the world of digital advertising, this may have more to do with the fact that so much bullshit has been slung at both advertisers and publishers that there is an incredible amount of skepticism about advertising products.

Spooky23 10y ago

People do stupid shit like this all of the time. Folks are trained to get many types of products for free. I've seen similar cases where businesses refuse to pay for things like licensed information that have a clear and obvious value.

dsacco 10y ago
Clear and obvious to who? What makes you believe this is not a Dunning-Kruger effect on your part? Do the customers have the same special insight you do? Most importantly, is it more likely that you're not as well informed as you think you are, that you don't fully understand the competing priorities at play, or that the business is actually being stupid, as you say?
- Spooky23 10y ago
  Thanks for the message board psychological analysis. In the example that I was loosely referring to, and are not at liberty to discuss in further detail, companies must pay to be qualified to bid on a specific type of business. Firms that license some specific information are far more likely (on the order of 50%) to successfully bid. This information is clearly disclosed to them when they get qualified. So they make a voluntary, significant investment to participate in a process, and then fail to take a simple step that would make them far more likely to make money. I call that dumb, but perhaps I am in fact too incompetent to make that assessment.
  - dsacco 10y ago
    Sorry, I don't mean to provide an armchair psychological insight here. I'm just trying to play devil's advocate. While in your specific case your position might be justified, I think there's value in pointing out that many misunderstandings about customer behavior are due to Dunning-Kruger on the part of people selling them things :)
danielweber 10y ago
Because once I need to pay for something, I need to get my boss's approval, and then he's going to ask all these stupid questions. (Not me specifically, but I've been there in past places.)

lmm 10y ago

Do you believe that "dumping" in the hopes of obtaining a monopoly is a real thing that happens or at least happened? (e.g. Standard Oil) Leaving aside the question of what their intentions are, do VCs do something economically equivalent? And now bringing back intentions, if the economic effects (and the resulting impact on customers) are the same, does the intention matter?