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The only sensible answer is opportunity cost. I’ve worked with a few startups that have axed entirely profitable products because they could get a better ROI by

The only sensible answer is opportunity cost. I’ve worked with a few startups that have axed entirely profitable products because they could get a better ROI by defunding those products, and directing that investment into their core competency. In the cases of this that I’ve been involved with, it’s always turned out to be a very good decision.

taneq 7y ago
Why would you not spin off the product as a separate company? I can't think of a single situation where "having X" is better than "having X and also $25mil/year".
- zapita 7y ago
  If your all-star engineering team is tied up by the 25mil/year business, you may need their attention urgently refocused on the core product. In theory they could recruit a replacement team and hand off the business, but that also takes time and attention.
  - inerte 7y ago
    Agreed, and just to expand, not only the engineers, but ops, infrastructure maintenance, customer support, sales, rent, HR, legal, recruiters, translators, the IT guy that keeps the TVs with Zoom working, and the list goes on and on and on. Some of these people are full time on the project, some are part-time, some are shared costs, some are not, but sometimes it's totally worth to shed the $25mil/year and re-focus on something else.
- AmericanChopper 7y ago
  Because opportunity cost means you don’t get to “and also”. In the cases that I’ve been involved with personally, spinning off another company hasn’t been feasible. To put it a bit more explicitly, say you have a product that generates $25mil/year, and runs about $10mil/year expenses. But, you also have a different product that for every $10mil that you invest into it generates $50mil/year in revenue. The opportunity cost isn’t that you’re spending $10mil to generate $15mil in profit, it’s that you’re spending $10mil to lose $25mil in profit. In reality everything will be a lot more complex than this. But having the discipline to focus on your core competency, especially in situations like this, is a common trait I’ve seen in many successful start-ups.

taneq 7y ago

Why would you not spin off the product as a separate company? I can't think of a single situation where "having X" is better than "having X and also $25mil/year".

zapita 7y ago
If your all-star engineering team is tied up by the 25mil/year business, you may need their attention urgently refocused on the core product. In theory they could recruit a replacement team and hand off the business, but that also takes time and attention.
- inerte 7y ago
  Agreed, and just to expand, not only the engineers, but ops, infrastructure maintenance, customer support, sales, rent, HR, legal, recruiters, translators, the IT guy that keeps the TVs with Zoom working, and the list goes on and on and on. Some of these people are full time on the project, some are part-time, some are shared costs, some are not, but sometimes it's totally worth to shed the $25mil/year and re-focus on something else.
AmericanChopper 7y ago
Because opportunity cost means you don’t get to “and also”. In the cases that I’ve been involved with personally, spinning off another company hasn’t been feasible. To put it a bit more explicitly, say you have a product that generates $25mil/year, and runs about $10mil/year expenses. But, you also have a different product that for every $10mil that you invest into it generates $50mil/year in revenue. The opportunity cost isn’t that you’re spending $10mil to generate $15mil in profit, it’s that you’re spending $10mil to lose $25mil in profit. In reality everything will be a lot more complex than this. But having the discipline to focus on your core competency, especially in situations like this, is a common trait I’ve seen in many successful start-ups.