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I'd counter that Pizza hut has a key logistical advantage of vertical integration. A delivery service is a very different business than a restaurant chain that
by kahnjw 6y ago
I'd counter that Pizza hut has a key logistical advantage of vertical integration. A delivery service is a very different business than a restaurant chain that does its own delivery.
I agree that GrubHub, Doordash, and to some extent Uber seem bloated when considering the sum total of the markets they play in. That doesn't mean these business models aren't sustainable, though. Some companies allocate resources to a few areas that turn into profit centers, some don't. The ones that don't will be sold off or parted out. And the cycle will continue. I'd wager that one of these companies will survive and turn out to be a profitable, healthy business in the next few years. The rest will probably be sold off or slowly downsized.
More broadly, to your criticism of SV's investment strategy, resource allocation is a hard problem. If you want to direct large sums of capital at certain business verticals, do you want to grow slowly and steadily over a 20+ year period only to find that the economics don't work, or do you want to fail fast with some extra waste in the middle? Failing fast has some upside to it, though I understand why I consistently hear this criticism on this site. It feels like the last decade has seen the pendulum swing towards fast money and back a little. I don't think were as far off from a healthy middle ground as some might argue.
- kahnjw 6y agoCorrection: Dominos not Pizza Hut.
- Apocryphon 6y ago> If you want to direct large sums of capital at certain business verticals, do you want to grow slowly and steadily over a 20+ year period only to find that the economics don't work, or do you want to fail fast with some extra waste in the middle? Maybe we'll eventually learn that artificially forcing business models to run at accelerated rates creates self-fulfilling prophecies of "fail fast."
- kahnjw 6y agoExcept for dozens of counter examples that make up for literally multiple trillions of dollars in market capitalization.
- Apocryphon 6y agoAnd how much money has been squandered funding the startups that do fail? Survivor bias.
- kahnjw 6y agoI'm not sure what you're getting at. Here are the facts: Companies following these accelerated growth trajectories now make up a total of 4 trillion in market capitalization depending on how you count it. That's really just the FAANGs, not the smaller companies that are profitable or on the road to profitability [1]. If you count everything you can safely say the number is closer to 8 trillion. Every year, VC in the US _as a whole_ invests roughly 100B [2]. If you cut out non-growth and non-tech sectors I'd guess that number total goes to around 40B, and roughly 100B (very rough number) globally. So yeah, some money gets "wasted" but it creates huge market capitalizations that are around two full orders of magnitude larger than a single years investment, and growing strong year over year. [1] https://www.investopedia.com/terms/f/faang-stocks.asp https://www.investopedia.com/terms/f/faang-stocks.asp [2] https://www.prnewswire.com/news-releases/us-venture-capital-investment-surpasses-130-billion-in-2019-for-second-consecutive-year-300986237.html https://www.prnewswire.com/news-releases/us-venture-capital-...
- scarface74 6y agoFacebook - didn’t raise billions and was profitable when it IPOd Amazon - operates on thin to non existent profits for years but use much of its own money to grow through operating cash. Apple - definitely didn’t raise billions in the 70s and was profitable at IPO. Netflix - I don’t know much about Netflix. Google - grew fast but it also had a profitable business. Microsoft - famously, MS didn’t even need the VC money it got early on. It took the money because it wanted the expertise of the investors.
- Apocryphon 6y agoNetflix started in the original dot-com bubble as a DVD rental service, and only began streaming in 2007, a decade after they were founded. Reed Hastings put up $2.5 million himself. Not exactly a case of rapid illusory hypergrowth like the poster children unicorns of the current gig/sharing economy dot-com bubble.
- Animats 6y agoDoordash tried that, with Doordash Kitchens. Don't know why, but their pseudo-restaurants in Redwood City, such as Rooster and Rice, have dropped off the Doordash site.