8 ms·

Trying to get big. The conventional wisdom is that it works better to get big with an unsustainable revenue model and convince people you can make it sustainab

by nrser 9y ago

Trying to get big. The conventional wisdom is that it works better to get big with an unsustainable revenue model and convince people you can make it sustainable than to stay small with a sustainable revenue model and convince people you can make it big. Spend whatever you can to capture the land, then charge rent. Sometimes it turns out you can't hold the territory. Sometimes it turns out it's not worth much. But the times it works out are the times that make funds.

jv22222 9y ago
I hate this conventional wisdom idea and it really doesn't need to be that way in many cases. Companies like Mailchimp and 37 Signals prove that the "logical" way to do it works pretty well. (Not a criticism of your comment, just the get big fast idea)
- bartread 9y ago
  I'm inclined to agree with you. It's not my field but I suspect VC pressure has something to do with it: they need their 10x returns, or their unicorns, to make up for all the losses elsewhere and "get big fast" is the most reliable mechanism for doing that. Not suggesting I'm a fan of it, btw.
  - user5994461 9y ago
    It's a market issue. Databases are a very competitive business with lots of options and competitors. It is also extremely hard to sell.
- _Codemonkeyism 9y ago
  Mailchimp is rather large, but 2017 I have the feeling 37Signals is rather insignificant, e.g. compared to Slack.
  - johnchristopher 9y ago
    FWIW when I was still a student and not in a 9-5 I wondered what if would feel like to use basecamp. Now here I am happily going with flow using slack on the fre eplan. One of my coworkers sometimes asks if we shouldn't go with a subscription to have the whole logs but we rarely have to dive so far in the past at all.
_pmf_ 9y ago
> The conventional wisdom is that it works better to get big with an unsustainable revenue model and convince people you can make it sustainable than to stay small with a sustainable revenue model and convince people you can make it big. This used to be called fraud, but now calling it out as such is thought of as regressive and anti-entrepreneurial.
- _Codemonkeyism 9y ago
  No it's called in German risk capital (Risikokapital), because you know the risks.
- nrser 9y ago
  I'm sorry if my wording was confusing; the company in these both situations is convincing people (investors) that they can become those things in the future, not that they are at the current time when they're not (which would likely involve some sort of deception). It's like: Case 1: "We are spending like mad to capture what we believe is a valuable market as fast as possible. This means we are losing money like crazy right now, but it is working and we are growing fantastically. Once are in a large dominant position, we believe we will be able to retain that market, so we won't have to spend as much on growth, and we can focus our energy on maximizing revenue and being capital efficient and start making a lot of profit." Case 2: "We have validated our product market fit and business model, and are profitable. Our market share, growth and revenue numbers are small but stable and positive. We believe we will be able to rapidly accelerate our growth and market share in the future while maintaining our margin and start making a lot of profit." Both are good, neither are fraud, but (1) currently tends to be the favored approach for venture financing, and one way or another it tends to be venture financed companies that end up dominating the important tech markets (though that doesn't necessarily means it's casual).
seanwilson 9y ago
If it's so obviously a bad idea, why do investors keep buying into it?
- moxious 9y ago
  It's a bad idea most of the time but sometimes it works. The smart investors have a portfolio of many bets, and it's priced in that most won't succeed. For the entrpreneur I think this is a bad idea but for the investors it's workable if they can do it a few dozen times over. It's just injection of both money and risk, amplifying the result. It'll fail more often than usual. But if it succeeds, wow.
- nrser 9y ago
  I don't really understand your question... this is the favored approach of many Silicon Valley VC firms, and they are widely considered some the smartest tech start-up investors in the world. If it really is a bad idea, and those firms have been so successful for so long not because of it but in spite of it, then it seems like a huge opportunity for others to come along and displace them with a better model. There's a lot of money in many of these tech markets. But we don't see that happening. I guess the answer is that it's unintuitive... it seems like an obviously bad idea to many people, but the people that have the most experience think it's a great idea and continue to succeed with it. There are other approaches: in China, for example, investors generally considered profitability much more important and expect it very rapidly, like in the first 6-18 months (though this has eased quite a bit towards a more SV-style model in recent years). The gripe then is that companies can't have any long term vision or go big because they have to be making profit immediately and constantly. Something about green grass...
  - watwut 9y ago
    I remember reading that they are loosing money on the aggregate. While there are some successful investors, majority is not long term successful.
    - nrser 9y ago
eeZah7Ux 9y ago
> Spend whatever you can to capture the land, then charge rent. Spot on. And this rent-seeking behavior is all about becoming quasi-monopolist in a niche and it's anticompetitive and anti-innovation. Real R&D is done only to capture land, then it is replaced by PR and all efforts go into holding the trench.
- bogomipz 9y ago
  What is the rent here, enterprise licensing? Quasi-monopolist? Does MongoDB have anywhere near a majority of market share for database vendor?
  - Eridrus 9y ago
    In technology, it's often the cost of re-integrating with something else. MongoDB makes this lock in ever better because it's API isn't SQL, so getting off is even harder than usual.
    - gaius 9y ago
      It's pretty easy to use the Mongo protocol to talk to Postgres, and Postgres JSONB beats Mongo BSON hands down
      - empthought 9y ago
        Cue gratuitous protocol changes from MongoDB.
deleted 9y ago
[deleted]

by nrser 9y ago

jv22222 9y ago

I hate this conventional wisdom idea and it really doesn't need to be that way in many cases. Companies like Mailchimp and 37 Signals prove that the "logical" way to do it works pretty well. (Not a criticism of your comment, just the get big fast idea)

bartread 9y ago
I'm inclined to agree with you. It's not my field but I suspect VC pressure has something to do with it: they need their 10x returns, or their unicorns, to make up for all the losses elsewhere and "get big fast" is the most reliable mechanism for doing that. Not suggesting I'm a fan of it, btw.
- user5994461 9y ago
  It's a market issue. Databases are a very competitive business with lots of options and competitors. It is also extremely hard to sell.
_Codemonkeyism 9y ago
Mailchimp is rather large, but 2017 I have the feeling 37Signals is rather insignificant, e.g. compared to Slack.
- johnchristopher 9y ago
  FWIW when I was still a student and not in a 9-5 I wondered what if would feel like to use basecamp. Now here I am happily going with flow using slack on the fre eplan. One of my coworkers sometimes asks if we shouldn't go with a subscription to have the whole logs but we rarely have to dive so far in the past at all.

_pmf_ 9y ago

> The conventional wisdom is that it works better to get big with an unsustainable revenue model and convince people you can make it sustainable than to stay small with a sustainable revenue model and convince people you can make it big. This used to be called fraud, but now calling it out as such is thought of as regressive and anti-entrepreneurial.

_Codemonkeyism 9y ago
No it's called in German risk capital (Risikokapital), because you know the risks.
nrser 9y ago
I'm sorry if my wording was confusing; the company in these both situations is convincing people (investors) that they can become those things in the future, not that they are at the current time when they're not (which would likely involve some sort of deception). It's like: Case 1: "We are spending like mad to capture what we believe is a valuable market as fast as possible. This means we are losing money like crazy right now, but it is working and we are growing fantastically. Once are in a large dominant position, we believe we will be able to retain that market, so we won't have to spend as much on growth, and we can focus our energy on maximizing revenue and being capital efficient and start making a lot of profit." Case 2: "We have validated our product market fit and business model, and are profitable. Our market share, growth and revenue numbers are small but stable and positive. We believe we will be able to rapidly accelerate our growth and market share in the future while maintaining our margin and start making a lot of profit." Both are good, neither are fraud, but (1) currently tends to be the favored approach for venture financing, and one way or another it tends to be venture financed companies that end up dominating the important tech markets (though that doesn't necessarily means it's casual).

seanwilson 9y ago

If it's so obviously a bad idea, why do investors keep buying into it?

moxious 9y ago
It's a bad idea most of the time but sometimes it works. The smart investors have a portfolio of many bets, and it's priced in that most won't succeed. For the entrpreneur I think this is a bad idea but for the investors it's workable if they can do it a few dozen times over. It's just injection of both money and risk, amplifying the result. It'll fail more often than usual. But if it succeeds, wow.
nrser 9y ago
I don't really understand your question... this is the favored approach of many Silicon Valley VC firms, and they are widely considered some the smartest tech start-up investors in the world. If it really is a bad idea, and those firms have been so successful for so long not because of it but in spite of it, then it seems like a huge opportunity for others to come along and displace them with a better model. There's a lot of money in many of these tech markets. But we don't see that happening. I guess the answer is that it's unintuitive... it seems like an obviously bad idea to many people, but the people that have the most experience think it's a great idea and continue to succeed with it. There are other approaches: in China, for example, investors generally considered profitability much more important and expect it very rapidly, like in the first 6-18 months (though this has eased quite a bit towards a more SV-style model in recent years). The gripe then is that companies can't have any long term vision or go big because they have to be making profit immediately and constantly. Something about green grass...
- watwut 9y ago
  I remember reading that they are loosing money on the aggregate. While there are some successful investors, majority is not long term successful.
  - nrser 9y ago

eeZah7Ux 9y ago

> Spend whatever you can to capture the land, then charge rent. Spot on. And this rent-seeking behavior is all about becoming quasi-monopolist in a niche and it's anticompetitive and anti-innovation. Real R&D is done only to capture land, then it is replaced by PR and all efforts go into holding the trench.

bogomipz 9y ago
What is the rent here, enterprise licensing? Quasi-monopolist? Does MongoDB have anywhere near a majority of market share for database vendor?
- Eridrus 9y ago
  In technology, it's often the cost of re-integrating with something else. MongoDB makes this lock in ever better because it's API isn't SQL, so getting off is even harder than usual.
  - gaius 9y ago
    It's pretty easy to use the Mongo protocol to talk to Postgres, and Postgres JSONB beats Mongo BSON hands down
    - empthought 9y ago
      Cue gratuitous protocol changes from MongoDB.

deleted 9y ago

[deleted]