6 ms·

People forgot what "sustainable business model" even means. It does not mean "infinite growth and 10 VC funds that want you to crap over your product to make ev

by dbrgn 8y ago

People forgot what "sustainable business model" even means. It does not mean "infinite growth and 10 VC funds that want you to crap over your product to make even more money". Sustainable business model means that you can pay your bills from your income (not from investments, since those want payback). It means happy customers and good products. It means that you grow in a reasonable pace, with costs that you'll be able to cover. Investors are a liability, not a feature.

jcelerier 8y ago
> People forgot what "sustainable business model" even means. It does not mean "infinite growth" actually, it does. If you want to keep the same revenue, you need to grow because everything around you keeps becoming more and more expensive - taxes, etc
- JackPoach 8y ago
  Not true. You can remain profitable forever, without growing your revenue. For example, a business with 10 million in revenues and 9 million in expenses can exist 'forever'. They don't need to grow their revenue. Of course, if your revenue is not growing, it's a bad sign.
  - Xylakant 8y ago
    A sustainable business can have 10 million revenues and 10 millions expenses. Expenses contain the salaries of all people employed. As long as the salaries make for a good living for everyone involved that's good enough if you don't have investors that want to extract profits. You'll still want a bit of a rainy-day fund to cover unexpected losses and you'll want sufficient growth to cover inflation. Not growing beyond that is not necessarily a bad sign, it may be a conscious decision. Growth brings its own kinds of problems, stability has its own appeal.
    - nybble41 8y ago
      A business without any capital investments (tools, inventory, human capital, your "rainy-day fund") isn't much of a business at all. As long as you're tying up capital in the business you need to justify that investment by turning an accounting profit; otherwise the business is losing money compared to what could have been earned by investing the same resources in some other venture. Economic profit, which factors in opportunity cost, does tend toward zero. A sustainable business can exist with no economic profit or loss, but the accounting profits would be in line with standard market rates of return. Of course, if the business's investors are also its employees (as is often the case for small, privately-held businesses) then any accounting profits can be distributed in the form of salaries... but in that case the investor-employees will expect higher salaries than they would receive as mere employees elsewhere. Keeping up with inflation does not count as growth. Growth or decline should be calculated in terms of purchasing power (inflation-adjusted dollars), not raw currency.
      - Xylakant 8y ago
        > but in that case the investor-employees will expect higher salaries than they would receive as mere employees elsewhere. Is that necessarily so? They can just as well decide that being in control of their work justifies a lower wage than market rate. After all, it’s their business.
        nybble41 8y ago
        As usual, the caveat "all else being equal" applies. They should expect a higher salary than they would receive elsewhere in a position with a similar degree of job satisfaction and other non-salary factors. But you're right, a lower salary / return on investment might be acceptable in exchange for a greater degree of control. The same goes for non-employee investors, of course; one might hold shares in a company (or more commonly, a co-op) not for any direct financial benefit but rather as a way to influence how the organization is run.
  - jcelerier 8y ago
    > For example, a business with 10 million in revenues and 9 million in expenses can exist 'forever' but that's what I'm saying : at equal amount of work, expenses keep increasing in time.
    - ric2b 8y ago
      You have a misunderstanding of inflation. The company can increase it's prices at the pace of inflation and in real terms nothing will change.
- lostapathy 8y ago
  Technology also becomes cheaper over time, and efficiencies can be exploited both of which which can offset some of the other expenses that grow and at the very least lengthen the runway substantially.
- ConceptJunkie 8y ago
  That doesn't make sense. If inflation is causing your expenses to increase, your prices will need to be increased accordingly. Stuff doesn't naturally get more expensive in constant dollars. In fact, except for labor, and very limited resources, it usually gets cheaper over time.
Traster 8y ago
We need to remember what sustainable business model means for the people in charge at patreon though. What you describe as a sustainable business model is correct for a small independent business. What is sustainable for a venture capital fund is to have many companies attempting to grow revenue by 50% PA, not 5% PA. For a venture capital firm investing $60m into a company and hoping for small sustainable profits isn't a sustainable business model - it's tying your money up in low growth long term investments when that's literally the opposite of what they invested for. This may not be good for the people who use Patreon, but what you're describing isn't sustainable for Patreon.
- dbrgn 8y ago
  It isn't sustainable for Patreon's investors. It could be sustainable for Patreon itself. The 5% cut sounds like a reasonable amount of money to build and run a company.
- dalbasal 8y ago
  Sustainable business is a very poor choice of words for a VC to use in this context. Your investment doctrine might require companies to pursue 10X growth or die trying, but... that means your investment model is not about sustainability (of the businesses you invest in). The businesses could be perfectly sustainable. A startup is not necessarily guided by sustainability. Amazon lost money for decades. FB never bothered to make money until their IPO. They were not pursuing sustainability at those points. They were betting on growth.
  - ConceptJunkie 8y ago
    And Cheers was near the bottom of the ratings its first season. Today low ratings gets you canceled after 6 episodes or fewer. Good things often take a while to take root. VCs aren't interested in that noise.
JackPoach 8y ago
You are technically correct BUT when founders see that they get better ROI via the investor model, rather than 'sustainable development', it's technically rational to do just that. All it means is that there are probably millions of retirees who'll get stuck with all those losses, because the investment model depends on the greater fool theory, and if I understand how IPOs work, those are mostly retirement funds.
- majewsky 8y ago
  > it's technically rational to do just that It's rational only in the same way that Vulcans are always logical (as Star Trek writers would have you believe). Rationality is a tool to help you achieve your goals and realize your values better. Any particular method can only ever be rational relative to some goal one is seeking.
  - dragonwriter 8y ago
    > It's rational only in the same way that Vulcans are always logical (as Star Trek writers would have you believe). But Star Trek writers wouldn't generally have you believe that (they'd have you believe that some Vulcans themselves would believe that and/or have others believe that and/or seek that.) > Rationality is a tool to help you achieve your goals and realize your values better. Rationality isn't a tool, it is perfectly optimal goal seeking. > Any particular method can only ever be rational relative to some goal one is seeking. Well, no, it's relative to the utility-weighted combination of all of your goals; that is, rational behavior is whatever behavior optimizes your complete utility function, not just addresses one of your goals in isolation.
    - AlexandrB 8y ago
      > Rationality isn't a tool, it is perfectly optimal goal seeking. I think you just agreed with the comment you're trying to disagree with. To paraphrase your comment: "rationality is a tool for achieving one or more goals". If not a tool, what would you describe it as? Animal instincts - the kind we're hard-wired with - aren't "rational" in the context of human society so being rational is in some sense a choice. The only way to define this away is to extend the definition such that all human behaviour is "rational" because it's meant to fulfill some conscious or unconscious goal. But this definition is useless!
roenxi 8y ago
> Investors are a liability, not a feature. It isn't fair to make a post identifying a misused phrase, but then turn around and call investors a liability. Investors are a key part of the process. While I personally agree with you on what a sustainable business model should mean, investors hold the opinion that actually matters (much like a judge's opinion of what is reasonable is more important than the average armchair expert). Someone has to decide what "sustainable" means, and it is best that the person who decides is the one who stumped up the money.
- chmod775 8y ago
  > Investors are a key part of the process. What process?
  - whyisthewhat 8y ago
    The process of making money for investors.
  - roenxi 8y ago
    The birth, existence and death of companies.
- Xylakant 8y ago
  > Someone has to decide what "sustainable" means, and it is best that the person who decides is the one who stumped up the money. If you have no investor and the company has grown organically from the initial founding, the only people that stumped up money are the owners or, in a more cooperatively organized company, the people that took less wage to allow for investment in growth. Taking on investment relinquishes control over various features of your company, for example on the desired definition of "sustainable". In that regard, investors are a liability.
- dreamcompiler 8y ago
  VCs don't care about sustainability. They care about exiting early and exiting big. This is the opposite of sustainability.
- 8y ago
Tsubasachan 8y ago
The internet hasn't really changed that much from the .com bubble days. Doesn't help that there is a LOT of money in circulation looking for investments.

by dbrgn 8y ago

jcelerier 8y ago

> People forgot what "sustainable business model" even means. It does not mean "infinite growth" actually, it does. If you want to keep the same revenue, you need to grow because everything around you keeps becoming more and more expensive - taxes, etc

JackPoach 8y ago
Not true. You can remain profitable forever, without growing your revenue. For example, a business with 10 million in revenues and 9 million in expenses can exist 'forever'. They don't need to grow their revenue. Of course, if your revenue is not growing, it's a bad sign.
- Xylakant 8y ago
  A sustainable business can have 10 million revenues and 10 millions expenses. Expenses contain the salaries of all people employed. As long as the salaries make for a good living for everyone involved that's good enough if you don't have investors that want to extract profits. You'll still want a bit of a rainy-day fund to cover unexpected losses and you'll want sufficient growth to cover inflation. Not growing beyond that is not necessarily a bad sign, it may be a conscious decision. Growth brings its own kinds of problems, stability has its own appeal.
  - nybble41 8y ago
    A business without any capital investments (tools, inventory, human capital, your "rainy-day fund") isn't much of a business at all. As long as you're tying up capital in the business you need to justify that investment by turning an accounting profit; otherwise the business is losing money compared to what could have been earned by investing the same resources in some other venture. Economic profit, which factors in opportunity cost, does tend toward zero. A sustainable business can exist with no economic profit or loss, but the accounting profits would be in line with standard market rates of return. Of course, if the business's investors are also its employees (as is often the case for small, privately-held businesses) then any accounting profits can be distributed in the form of salaries... but in that case the investor-employees will expect higher salaries than they would receive as mere employees elsewhere. Keeping up with inflation does not count as growth. Growth or decline should be calculated in terms of purchasing power (inflation-adjusted dollars), not raw currency.
    - Xylakant 8y ago
      > but in that case the investor-employees will expect higher salaries than they would receive as mere employees elsewhere. Is that necessarily so? They can just as well decide that being in control of their work justifies a lower wage than market rate. After all, it’s their business.
      - nybble41 8y ago
        As usual, the caveat "all else being equal" applies. They should expect a higher salary than they would receive elsewhere in a position with a similar degree of job satisfaction and other non-salary factors. But you're right, a lower salary / return on investment might be acceptable in exchange for a greater degree of control. The same goes for non-employee investors, of course; one might hold shares in a company (or more commonly, a co-op) not for any direct financial benefit but rather as a way to influence how the organization is run.
- jcelerier 8y ago
  > For example, a business with 10 million in revenues and 9 million in expenses can exist 'forever' but that's what I'm saying : at equal amount of work, expenses keep increasing in time.
  - ric2b 8y ago
    You have a misunderstanding of inflation. The company can increase it's prices at the pace of inflation and in real terms nothing will change.
lostapathy 8y ago
Technology also becomes cheaper over time, and efficiencies can be exploited both of which which can offset some of the other expenses that grow and at the very least lengthen the runway substantially.
ConceptJunkie 8y ago
That doesn't make sense. If inflation is causing your expenses to increase, your prices will need to be increased accordingly. Stuff doesn't naturally get more expensive in constant dollars. In fact, except for labor, and very limited resources, it usually gets cheaper over time.

Traster 8y ago

We need to remember what sustainable business model means for the people in charge at patreon though. What you describe as a sustainable business model is correct for a small independent business. What is sustainable for a venture capital fund is to have many companies attempting to grow revenue by 50% PA, not 5% PA. For a venture capital firm investing $60m into a company and hoping for small sustainable profits isn't a sustainable business model - it's tying your money up in low growth long term investments when that's literally the opposite of what they invested for. This may not be good for the people who use Patreon, but what you're describing isn't sustainable for Patreon.

dbrgn 8y ago
It isn't sustainable for Patreon's investors. It could be sustainable for Patreon itself. The 5% cut sounds like a reasonable amount of money to build and run a company.
dalbasal 8y ago
Sustainable business is a very poor choice of words for a VC to use in this context. Your investment doctrine might require companies to pursue 10X growth or die trying, but... that means your investment model is not about sustainability (of the businesses you invest in). The businesses could be perfectly sustainable. A startup is not necessarily guided by sustainability. Amazon lost money for decades. FB never bothered to make money until their IPO. They were not pursuing sustainability at those points. They were betting on growth.
- ConceptJunkie 8y ago
  And Cheers was near the bottom of the ratings its first season. Today low ratings gets you canceled after 6 episodes or fewer. Good things often take a while to take root. VCs aren't interested in that noise.

JackPoach 8y ago

You are technically correct BUT when founders see that they get better ROI via the investor model, rather than 'sustainable development', it's technically rational to do just that. All it means is that there are probably millions of retirees who'll get stuck with all those losses, because the investment model depends on the greater fool theory, and if I understand how IPOs work, those are mostly retirement funds.

majewsky 8y ago
> it's technically rational to do just that It's rational only in the same way that Vulcans are always logical (as Star Trek writers would have you believe). Rationality is a tool to help you achieve your goals and realize your values better. Any particular method can only ever be rational relative to some goal one is seeking.
- dragonwriter 8y ago
  > It's rational only in the same way that Vulcans are always logical (as Star Trek writers would have you believe). But Star Trek writers wouldn't generally have you believe that (they'd have you believe that some Vulcans themselves would believe that and/or have others believe that and/or seek that.) > Rationality is a tool to help you achieve your goals and realize your values better. Rationality isn't a tool, it is perfectly optimal goal seeking. > Any particular method can only ever be rational relative to some goal one is seeking. Well, no, it's relative to the utility-weighted combination of all of your goals; that is, rational behavior is whatever behavior optimizes your complete utility function, not just addresses one of your goals in isolation.
  - AlexandrB 8y ago
    > Rationality isn't a tool, it is perfectly optimal goal seeking. I think you just agreed with the comment you're trying to disagree with. To paraphrase your comment: "rationality is a tool for achieving one or more goals". If not a tool, what would you describe it as? Animal instincts - the kind we're hard-wired with - aren't "rational" in the context of human society so being rational is in some sense a choice. The only way to define this away is to extend the definition such that all human behaviour is "rational" because it's meant to fulfill some conscious or unconscious goal. But this definition is useless!

roenxi 8y ago

> Investors are a liability, not a feature. It isn't fair to make a post identifying a misused phrase, but then turn around and call investors a liability. Investors are a key part of the process. While I personally agree with you on what a sustainable business model should mean, investors hold the opinion that actually matters (much like a judge's opinion of what is reasonable is more important than the average armchair expert). Someone has to decide what "sustainable" means, and it is best that the person who decides is the one who stumped up the money.

chmod775 8y ago
> Investors are a key part of the process. What process?
- whyisthewhat 8y ago
  The process of making money for investors.
- roenxi 8y ago
  The birth, existence and death of companies.
Xylakant 8y ago
> Someone has to decide what "sustainable" means, and it is best that the person who decides is the one who stumped up the money. If you have no investor and the company has grown organically from the initial founding, the only people that stumped up money are the owners or, in a more cooperatively organized company, the people that took less wage to allow for investment in growth. Taking on investment relinquishes control over various features of your company, for example on the desired definition of "sustainable". In that regard, investors are a liability.
dreamcompiler 8y ago
VCs don't care about sustainability. They care about exiting early and exiting big. This is the opposite of sustainability.
8y ago

Tsubasachan 8y ago

The internet hasn't really changed that much from the .com bubble days. Doesn't help that there is a LOT of money in circulation looking for investments.