3 ms·
If these companies were profitable from the beginning, some sort of profit sharing mechanism could compensate for providing a financial reward. The challenge i
by joeblau 9y ago
If these companies were profitable from the beginning, some sort of profit sharing mechanism could compensate for providing a financial reward. The challenge is that these businesses are setup to lose money until they get to some "scale" not profit margin. The scale goal leads founders to raise tons of Venture Capital and even VC's like Bill Gurley says that the constraint of profitability has been relaxed across the industry[1].
Bill says it's 10 or 100 times easier to lose 40 million to make 100 million than it is to run a profitable company to 100 million. If you extrapolate that out, there is no incentive from the majority stake holders (VC's) to IPO until they are ready.
[1] - https://youtu.be/-cxK1YQfMXA?t=1165 https://youtu.be/-cxK1YQfMXA?t=1165
- mathattack 9y agoAirBnB still has all their VC money in the bank.
- kelnos 9y agoSure, but I expect not all companies can be run profitably from day one, or even close. Some markets also benefit from network effects, so prioritizing profit over growth can lead to your eventual failure. Arguably the excessive availability of venture capital makes it a lot easier to go the growth/scale route, and to do so on someone else's dime, and this encourages people to ignore the idea of building a profitable business from the beginning. And that sucks, but if you're trying to enter a market where the norm is to run at a loss in order to gain scale, you probably aren't going to be successful avoiding VC money and charging higher prices, unless you can differentiate yourself as a premium product, or something.