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A business that’s doing great can have numbers that look like this if they’re investing heavily in growth. In that case, they’re losing money deliberately—if th
by danenania 7y ago
A business that’s doing great can have numbers that look like this if they’re investing heavily in growth. In that case, they’re losing money deliberately—if they wanted to, they could optimize for profits and be making money, but at the cost of growing slower and presumably sacrificing greater profits in the future. If you’re a shareholder, you probably don’t want that.
I don’t know whether Slack is in this position, but simply looking at revenue and losses doesn’t give you enough information to judge how well they’re doing on its own. You need to look at things like CAC and growth rate.
- scarface74 7y agoThat’s always the excuse. It’s an outlier when it happens.
- danenania 7y agoWell yeah, businesses that are failing/flailing will obviously want to spin the ‘investing in growth’ narrative rather than tell the truth. My point is just that you need to look deeper than revenue and losses to determine which is which.
- ilikehurdles 7y agoSlack's Denver office very recently came online and I know a ton of colleagues who were hired in their sales department.
- scarface74 7y agoIf they need to hire aggressively for sells that means their customer acquisition costs are about to increase and there are still doubts about how deeply they can get into large enterprises where the lifetime value of a customer will be worth it. Also, selling into the enterprise is a long slow process.
- mytailorisrich 7y agoThey're a cloud-based software company. Where is this "heavy investment in growth" going to? It's not like if they needed huge capex expenditure to grow.
- danenania 7y agoSales and marketing.
- mytailorisrich 7y agoIf they need to spend more on sales an marketing than it brings in they are even more doomed than I thought...
- danenania 7y agoIf you can spend 1 million in year 1 to acquire a customer who pays back 3 million over the next five years, that’s a good investment, but you’ll initially book a loss. Enterprise sales is expensive, but the contracts are very large and long-term.
- elsewhen 7y agoSales and marketing are largely one-time expenses, but customers can have very high LTVs. So you can zoom into a particular quarter of a company's results and they can have huge losses. But, in the future they can dial down their sales and marketing expense, and be sitting on an extremely profitable business.