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For greenfield plays, the benefits of being market leader are so extreme that "grow as fast as possible" is almost always the right strategy.

by _rpd 7y ago

mox1 7y ago
Benefit to whom? There are at least 3 parties involved in every VC funded startup, the company, the investors and the customers. Growing as fast a possbile and becoming a market leader benefits 1 perhaps 2 of those. I would argue usually benefits 1.
- SpicyLemonZest 7y ago
  I think it’s hard to argue growing fast doesn’t benefit customers. Becoming a market leader means almost by definition that a lot of customers are convinced you’re selling the best thing on the market.
  - gbear605 7y ago
    From another perspective, becoming the market leader might mean that a lot of consumers are convinced you’re selling the best thing on the market because you’re the only thing on the market because you bankrupted all the other choices. The venture capital growth-at-all-costs model results in monopoly or near-monopoly conditions, which is horrible for consumers. If your business doesn’t have competition, you’re probably hurting your customers.
    - SpicyLemonZest 7y ago
      I suppose I can imagine the scenario, but have any VC-backed companies actually grown big in that way? Doordash is the closest example I can think of, but unless you're considering restaurants rather than end users as their customers, it seems pretty uncontroversial to say that it's been good for customers. Alternatives exist, and both Doordash and the alternatives have significantly expanded the range of foods most people can get delivered.
      - throwaway2048 7y ago
        uber's model is/was essentially putting their competition (taxis) out of business with VC subsidized rides.
        SpicyLemonZest 7y ago
        Taxis are still in business in every city I’m personally familiar with. Are there other cities where they’re gone?
  - ssalazar 7y ago
    Medium comes to mind, who quickly gained popularity but then introduced user-hostile features when they realized they needed to tighten their business model. Evernote is a similar example. Even Facebook/Instagram/Google before they had advertising. Having a finite VC-funded runway means eventually having to convert market share to profitability, such as by raising prices, and that’s not always a great result for customers.
  - AlexandrB 7y ago
    Or it means that you're selling $2 of goods and services for $1 of cost to the customer. In traditional markets, this kind of predatory pricing was considered a form of anti-competitive behaviour, but usually only large near-monopolies with deep pockets had the money to pull it off. VC allows a startup - that can't possibly be considered a monopoly - to price a product/service at below-cost for years to grow its user base regardless of ultimate sustainability. See also: Groupon, Movie Pass, WeWork, and maybe Uber. In the end it's often the VCs that choose the market leader, not the customers. Competitors that enter the market without VC backing are forced to be profitable from the start and have no way to compete on quality or price. This is especially apparent with "gig economy" startups where offering subsidies/incentives to the service providers increases the quality (timeliness, availability, coverage) of the service for the customer. In many ways it resembles a command economy, with a small number of VCs deciding what "the next big thing" is ("oh, looks like everybody wants scooters, let's pour all our capital into scooter companies").
bordercases 7y ago
It's because software is primarily a means of rent-extraction on existing industries than providing massive amounts of new value, with the potential exception of cases where inferential computing is being used. The market thinks it needs more software when what it needs is good software in the right place. But then the belief that an industry needs more software creates a problem – a lack of software. This comes with the host of other software-specific intractables which spurs on the growth of software-focused labor. But in the process of converting an industry into one that is software dependent, you can capture massive market-share while gaining slightly greater efficiencies on the services provided by that industry but then introducing a whole new host of software-specific problems. Which grows software's demand. The thesis that payoffs for VCs are so substantial in software startups come specifically from the scaling of software across an industry capturing industry-specific assets rather than improving the productivity of that industry per se. If it were just about outsized productivity more specific bets that resulted in critical efficiency improvements would be more common. But instead we see broad-based bets that serve to get rid of minor consumer inconveniences, then adding more inconveniences to produce an incentive to raise consumer prices.
- bpt3 7y ago
  > It's because software is primarily a means of rent-extraction on existing industries than providing massive amounts of new value, with the potential exception of cases where inferential computing is being used. How is software rent-extraction, and why would inferential computing be an exception to this? Software generally reduces the cost of performing some task while increasing speed, accuracy, and efficiency. > The market thinks it needs more software when what it needs is good software in the right place. But then the belief that an industry needs more software creates a problem – a lack of software. This comes with the host of other software-specific intractables which spurs on the growth of software-focused labor. Successful companies are looking for ways to increase their margins, which software generally does for the reasons I listed above, not inventing ways to integrate software into their business that serves no purpose. > But in the process of converting an industry into one that is software dependent, you can capture massive market-share while gaining slightly greater efficiencies on the services provided by that industry but then introducing a whole new host of software-specific problems. Which grows software's demand. Software generally is able to produce massive efficiency gains, not minor ones. > The thesis that payoffs for VCs are so substantial in software startups come specifically from the scaling of software across an industry capturing industry-specific assets rather than improving the productivity of that industry per se. If it were just about outsized productivity more specific bets that resulted in critical efficiency improvements would be more common. But instead we see broad-based bets that serve to get rid of minor consumer inconveniences, then adding more inconveniences to produce an incentive to raise consumer prices. Again, I question why you're saying that software doesn't produce large productivity/efficiency gains, and would add that VCs are interested in software companies because of the high margins, short production cycles, and past successes with software companies (among other reasons). You seem to be focused on a few specific types of companies (I think social media apps would fit your description, though I'd be happy to get specific examples of what you have in mind) that are neither the norm for the software industry or VC ecosystem in my experience.

For greenfield plays, the benefits of being market leader are so extreme that "grow as fast as possible" is almost always the right strategy.

by _rpd 7y ago

For greenfield plays, the benefits of being market leader are so extreme that "grow as fast as possible" is almost always the right strategy.

mox1 7y ago

Benefit to whom? There are at least 3 parties involved in every VC funded startup, the company, the investors and the customers. Growing as fast a possbile and becoming a market leader benefits 1 perhaps 2 of those. I would argue usually benefits 1.

SpicyLemonZest 7y ago
I think it’s hard to argue growing fast doesn’t benefit customers. Becoming a market leader means almost by definition that a lot of customers are convinced you’re selling the best thing on the market.
- gbear605 7y ago
  From another perspective, becoming the market leader might mean that a lot of consumers are convinced you’re selling the best thing on the market because you’re the only thing on the market because you bankrupted all the other choices. The venture capital growth-at-all-costs model results in monopoly or near-monopoly conditions, which is horrible for consumers. If your business doesn’t have competition, you’re probably hurting your customers.
  - SpicyLemonZest 7y ago
    I suppose I can imagine the scenario, but have any VC-backed companies actually grown big in that way? Doordash is the closest example I can think of, but unless you're considering restaurants rather than end users as their customers, it seems pretty uncontroversial to say that it's been good for customers. Alternatives exist, and both Doordash and the alternatives have significantly expanded the range of foods most people can get delivered.
    - throwaway2048 7y ago
      uber's model is/was essentially putting their competition (taxis) out of business with VC subsidized rides.
      - SpicyLemonZest 7y ago
        Taxis are still in business in every city I’m personally familiar with. Are there other cities where they’re gone?
- ssalazar 7y ago
  Medium comes to mind, who quickly gained popularity but then introduced user-hostile features when they realized they needed to tighten their business model. Evernote is a similar example. Even Facebook/Instagram/Google before they had advertising. Having a finite VC-funded runway means eventually having to convert market share to profitability, such as by raising prices, and that’s not always a great result for customers.
- AlexandrB 7y ago
  Or it means that you're selling $2 of goods and services for $1 of cost to the customer. In traditional markets, this kind of predatory pricing was considered a form of anti-competitive behaviour, but usually only large near-monopolies with deep pockets had the money to pull it off. VC allows a startup - that can't possibly be considered a monopoly - to price a product/service at below-cost for years to grow its user base regardless of ultimate sustainability. See also: Groupon, Movie Pass, WeWork, and maybe Uber. In the end it's often the VCs that choose the market leader, not the customers. Competitors that enter the market without VC backing are forced to be profitable from the start and have no way to compete on quality or price. This is especially apparent with "gig economy" startups where offering subsidies/incentives to the service providers increases the quality (timeliness, availability, coverage) of the service for the customer. In many ways it resembles a command economy, with a small number of VCs deciding what "the next big thing" is ("oh, looks like everybody wants scooters, let's pour all our capital into scooter companies").

bordercases 7y ago

It's because software is primarily a means of rent-extraction on existing industries than providing massive amounts of new value, with the potential exception of cases where inferential computing is being used. The market thinks it needs more software when what it needs is good software in the right place. But then the belief that an industry needs more software creates a problem – a lack of software. This comes with the host of other software-specific intractables which spurs on the growth of software-focused labor. But in the process of converting an industry into one that is software dependent, you can capture massive market-share while gaining slightly greater efficiencies on the services provided by that industry but then introducing a whole new host of software-specific problems. Which grows software's demand. The thesis that payoffs for VCs are so substantial in software startups come specifically from the scaling of software across an industry capturing industry-specific assets rather than improving the productivity of that industry per se. If it were just about outsized productivity more specific bets that resulted in critical efficiency improvements would be more common. But instead we see broad-based bets that serve to get rid of minor consumer inconveniences, then adding more inconveniences to produce an incentive to raise consumer prices.

bpt3 7y ago
> It's because software is primarily a means of rent-extraction on existing industries than providing massive amounts of new value, with the potential exception of cases where inferential computing is being used. How is software rent-extraction, and why would inferential computing be an exception to this? Software generally reduces the cost of performing some task while increasing speed, accuracy, and efficiency. > The market thinks it needs more software when what it needs is good software in the right place. But then the belief that an industry needs more software creates a problem – a lack of software. This comes with the host of other software-specific intractables which spurs on the growth of software-focused labor. Successful companies are looking for ways to increase their margins, which software generally does for the reasons I listed above, not inventing ways to integrate software into their business that serves no purpose. > But in the process of converting an industry into one that is software dependent, you can capture massive market-share while gaining slightly greater efficiencies on the services provided by that industry but then introducing a whole new host of software-specific problems. Which grows software's demand. Software generally is able to produce massive efficiency gains, not minor ones. > The thesis that payoffs for VCs are so substantial in software startups come specifically from the scaling of software across an industry capturing industry-specific assets rather than improving the productivity of that industry per se. If it were just about outsized productivity more specific bets that resulted in critical efficiency improvements would be more common. But instead we see broad-based bets that serve to get rid of minor consumer inconveniences, then adding more inconveniences to produce an incentive to raise consumer prices. Again, I question why you're saying that software doesn't produce large productivity/efficiency gains, and would add that VCs are interested in software companies because of the high margins, short production cycles, and past successes with software companies (among other reasons). You seem to be focused on a few specific types of companies (I think social media apps would fit your description, though I'd be happy to get specific examples of what you have in mind) that are neither the norm for the software industry or VC ecosystem in my experience.