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People often use Amazon as an example of why start-ups don't need to be profitable, but I'm not sure it's a good example. Amazon wasn't profitable (at least in
by raesene9 5y ago
People often use Amazon as an example of why start-ups don't need to be profitable, but I'm not sure it's a good example.
Amazon wasn't profitable (at least in part) because it was building a massive network of warehouses, datacentres and logistics systems, that provide a large competitive moat.
That's not the case for most (or possibly even a majority) of start-ups.
The standard reasoning is that we're pricing in future growth. but once a company fills most of it's market sector and stops growing, that rational makes less sense.
- ak_111 5y agoI see your point, but am not using it as an example why start-ups don't need to be profitable. Just using it as an example to why being unprofitable doesn't prevent you from having a high valuation on the stock market. If you don't like this example, then almost all the recent crazy ipos were unprofitable companies. Actually a profitable tech ipo is highly exceptional these days.
- raesene9 5y agoyep that's kind of my point :) There's a huge number of IPOs/public companies with very high valuations and low profitability. The YC companies are just an example of that, which is relevant to the story at hand.
- addicted 5y agoAlso, what may work for Amazon is unlikely to work for the next Amazon, precisely because Amazon exists, something the original Amazon didn’t have to face.
- pydry 5y agoAlso amazon could have effectively flipped a switch and started making profits at almost any point in time. Investors were aware of this.
- wongarsu 5y agoAmazon did a very classic version of reinvesting profits to drive growth: build more infrastructure, enter new segments, etc. It's easy to just stop doing that and start raking in profit. But many startups today invest into incentives, ads, low prices, low ad density on their platform (Twitter & Reddit). Stopping those measures is far more disruptive and has the potential to kill a company.
- sjg007 5y agoI am not sure this is actually true. I've been listening to the audiobook Amazon Unbound and there's a chapter on how Amazon's retail business was not profitable and was subsidized by other ventures.