4 ms·

None of the recent advice on the topic mention 'having a profitable business model'. Raising money is not the method, it is a method to extend your runway. Desi

None of the recent advice on the topic mention 'having a profitable business model'. Raising money is not the method, it is a method to extend your runway. Designing a sustainable business is another one.

jjoonathan 4y ago
What do you mean? They all mention it, usually towards the start, and it's definitely the core idea under discussion. In this one, I'd point to the title ("Extend your Runway"), and if you really picked at those nits I might fall back to "Default Alive."
- freediver 4y ago
  Well among other things, a sustainable business does not ever need to "extend its runway" because it is infinite by definition (sustainable meaning profit > 0) and "default alive" is a mode it operated in since inception. All advice in these articles applies to the other kind of businesses ("makes $10k and spends $100k/month...") that likely got in that position by what in some cases is basically a ponzi scheme of fund raising, which was completely fine until just a few days ago and then they realized it's not going to work forever. This then resulted in a widespread panic and all this advice about "how to survive" and suddenly realizing that you should also "make the product amazing". These should be default rules to live by for any business, is all that I am saying.
  - jjoonathan 4y ago
    Ah, so you think Venture Capital should categorically not exist and everyone should bootstrap. I understand where you are coming from. Here's how to grok VC: first of all, realize that even the VCiest VC understands that VC is a niche, and they'll send you on your way if you walk up to them with a bootstrap opportunity, even if it's a good bootstrap opportunity. This is a site run by VCs as a funnel for the VC scene in a VC town, so you'll hear a lot about VC here -- but bootstrapping definitely has its place. If you listen closely you'll even hear people talk about opportunities being better suited to VC or bootstrapping. Opportunities that can be bootstrapped should be bootstrapped, because then you get to keep more equity. Here's the critical point though: not all businesses can be bootstrapped. What happens if you try to organically grow your way into a new wide-open opportunity in a winner-take-all market? Some other guy raises a boatload of VC, beats you to it, and shuts you out. VC eats bootstrapper lunch. In theory, the returns from these outsize victories are great enough to offset the failures, but as with any kind of investing it really comes down to educated guesswork. It's not a ponzi scheme because on occasion it is wildly successful. It systematically reduces the time required for industry to colonize new technological niches. However, it does fall flat on its face from time to time, because that's what happens when you run instead of walk (or perhaps parkour instead of run).
    - freediver 4y ago
      > Ah, so you think Venture Capital should categorically not exist and everyone should bootstrap. Not at all that extreme, I was just bringing attention to the fact that VC funded startups get most (all?) of the talk of the town, making them almost ubiquitous, where the reality is that they are just one of the ways to start and run a business. In particular, none of these 'advice' posts we've seen lately here on HN and elsewhere seem to acknowledge the existence of 'non raising funds' startups which is basically what I objected to in the original comment.
jefftk 4y ago
It's in the article, from "Let's look at a hypothetical seed-stage startup with $2M in the bank right now. It makes $10k a month and spends $100k a month" through "Make the product amazing, go to your customers' offices, do crazy things that don't scale, whatever it takes."
- freediver 4y ago
  Being in a position of "makes $10k a month and spends $100k a month" is the whole problem. Not having a sustainable business model and focusing on raising money at all cost are two reasons that got it in that unenviable position in the first place. Perhaps the art of bootstrap is not discussed enough here.
  - djbusby 4y ago
    You may be confounding the Growth Phase for the Sustainable Phase. Many business models must pass through these phases. Profitable from the first client is... uncommon.
    - freediver 4y ago
      You do not need to be profitable from the first customer, but you need to have a hope or at least a sound plan to profitability.
      - jefftk 4y ago
        I don't see where you think the article disagrees with that?
        freediver 4y ago
        Well I do not know what else to say, other than to observe that we somehow got in a position of understanding the same article in diametrically opposite ways.
    - cj 4y ago
deleted 4y ago
[deleted]
polote 4y ago
What's the point of being vc funded and profitable? By definition if you are profitable you don't need external capital to exist and thus don't need vc money
- ajkjk 4y ago
  I imagine it is not too different from borrowing against your profitability in order to grow faster.
- alpha_squared 4y ago
  A sibling comment touched on it, but I want to expand a little bit on that. Given two companies competing on the same problem, where one is profitable and one isn't, which is likely to come out on top? I'd argue it's the one that brings in the most money (via profits + funding). At early stages, funding will almost always be greater than profits. A profitable company that does not seek investment will eventually lose out to an unprofitable one that has funding because it will grow faster. At some point, the larger company will seek to optimize for profit, acquire the profitable company, or become the default company for the problem space (a near-monopoly). The sad state of current affairs is that the market is optimized to promote dominance, not capital efficiency.
  - lostcolony 4y ago
    And with that changing, maybe we can have winners who make better products, or are more efficient with resources, or just...listen to their customers. Rather than merely being better at attracting VC capital. One can hope.
- toss1 4y ago
  You don't need the extra VC money, but often financing can get you to the point of addressing a far larger market far sooner. IF (big "IF") that more rapid growth is critical in your market segment, such as to obtain a better defensible moat by having far larger market share sooner, then VC can be a very good tradeoff. But if that is not your market dynamics, maintaining your freedom and growing organically can be best.
- 4y ago
puranjay 4y ago
Cheap liquidity is just unhealthy for the economy as a whole. Just allows zombie companies to thrive that create no long term value or productivity gains.
- mobilio 4y ago
  Also zombie companies merge between themselves and make super zombie companies.
- robocat 4y ago
  The issue is whether the gains of cheap money[1] (new valuable companies etcetera) outweigh the costs of cheap money (zombie companies etcetera). Your comment is unbalanced, because it only considers costs while ignoring gains, assuming that “cheap liquidity” also creates valuable gains. Or perhaps your comment is tautologically true: liquidity is defined as cheap when the economic returns are strongly negative overall? [1] “Cheap liquidity” is a terrible definition, because liquidity is predominantly considered a good thing in functioning markets, and cheap transactions are usually seen as good as well. I am assuming you mean “cheap liquidity” to mean “cheap money” (not a clear definition either) or that “raising funds is easy for startups and costs them relatively little”.
  - formerkrogemp 4y ago
    Your “reply” is not very engaging, and it feels like you are mocking strawman shit that was never said. That is very unpleasant, and nobody likes that. You have read an awful lot into two sentences where there was only a short opinion. Not every opinion has to offer a 'balanced' take of pros and cons on every issue. If you must have an elephant-winded reply, surely you most likely know perfectly well what was meant by "cheap liquidity" in the sense of accommodative monetary policy, low interest rates, and quantitative easing more broadly. As has been seen around the world, this was intended to maintain asset levels, liquidity in key markets such as mortgages and bonds, reduce unemployment, and keep investor and consumer confidence buoyed. What we received in addition to this partially successful set of policies however were significantly cheap debt encouraging record household and corporate debt levels, near zero savings rates incentivizing spending and penalizing retirement savings, artificially inflated asset levels with the twofold consequences of encouraging risk taking at unprecedented levels to achieve quick returns and of outsized housing prices keeping many renting or paying a very large portion of their income for basic housing, and a slew of overpriced tech companies and startups, many of which were scams and never going to be profitable, that probably won't survive the current, ongoing market slowdown. Zombie companies, record wealth concentration, market control and production being concentrated into increasingly fewer firms through aggressive acquisitions and mergers, and rampant inflation are all ongoing consequences of this "cheap liquidity." Many companies have borrowed billions of dollars to raise dividends and to initiate stock buybacks as is their won't during low interest rates. However, many of these companies operating in critical industries also expect government bailouts without any strings attached or consequences given. Please do be pedantic and explain how all of this is positive, perhaps in a 'tautologically' true way and balanced manner.

jjoonathan 4y ago

What do you mean? They all mention it, usually towards the start, and it's definitely the core idea under discussion. In this one, I'd point to the title ("Extend your Runway"), and if you really picked at those nits I might fall back to "Default Alive."

freediver 4y ago
Well among other things, a sustainable business does not ever need to "extend its runway" because it is infinite by definition (sustainable meaning profit > 0) and "default alive" is a mode it operated in since inception. All advice in these articles applies to the other kind of businesses ("makes $10k and spends $100k/month...") that likely got in that position by what in some cases is basically a ponzi scheme of fund raising, which was completely fine until just a few days ago and then they realized it's not going to work forever. This then resulted in a widespread panic and all this advice about "how to survive" and suddenly realizing that you should also "make the product amazing". These should be default rules to live by for any business, is all that I am saying.
- jjoonathan 4y ago
  Ah, so you think Venture Capital should categorically not exist and everyone should bootstrap. I understand where you are coming from. Here's how to grok VC: first of all, realize that even the VCiest VC understands that VC is a niche, and they'll send you on your way if you walk up to them with a bootstrap opportunity, even if it's a good bootstrap opportunity. This is a site run by VCs as a funnel for the VC scene in a VC town, so you'll hear a lot about VC here -- but bootstrapping definitely has its place. If you listen closely you'll even hear people talk about opportunities being better suited to VC or bootstrapping. Opportunities that can be bootstrapped should be bootstrapped, because then you get to keep more equity. Here's the critical point though: not all businesses can be bootstrapped. What happens if you try to organically grow your way into a new wide-open opportunity in a winner-take-all market? Some other guy raises a boatload of VC, beats you to it, and shuts you out. VC eats bootstrapper lunch. In theory, the returns from these outsize victories are great enough to offset the failures, but as with any kind of investing it really comes down to educated guesswork. It's not a ponzi scheme because on occasion it is wildly successful. It systematically reduces the time required for industry to colonize new technological niches. However, it does fall flat on its face from time to time, because that's what happens when you run instead of walk (or perhaps parkour instead of run).
  - freediver 4y ago
    > Ah, so you think Venture Capital should categorically not exist and everyone should bootstrap. Not at all that extreme, I was just bringing attention to the fact that VC funded startups get most (all?) of the talk of the town, making them almost ubiquitous, where the reality is that they are just one of the ways to start and run a business. In particular, none of these 'advice' posts we've seen lately here on HN and elsewhere seem to acknowledge the existence of 'non raising funds' startups which is basically what I objected to in the original comment.

jefftk 4y ago

It's in the article, from "Let's look at a hypothetical seed-stage startup with $2M in the bank right now. It makes $10k a month and spends $100k a month" through "Make the product amazing, go to your customers' offices, do crazy things that don't scale, whatever it takes."

freediver 4y ago
Being in a position of "makes $10k a month and spends $100k a month" is the whole problem. Not having a sustainable business model and focusing on raising money at all cost are two reasons that got it in that unenviable position in the first place. Perhaps the art of bootstrap is not discussed enough here.
- djbusby 4y ago
  You may be confounding the Growth Phase for the Sustainable Phase. Many business models must pass through these phases. Profitable from the first client is... uncommon.
  - freediver 4y ago
    You do not need to be profitable from the first customer, but you need to have a hope or at least a sound plan to profitability.
    - jefftk 4y ago
      I don't see where you think the article disagrees with that?
      - freediver 4y ago
        Well I do not know what else to say, other than to observe that we somehow got in a position of understanding the same article in diametrically opposite ways.
  - cj 4y ago

deleted 4y ago

[deleted]

polote 4y ago

What's the point of being vc funded and profitable? By definition if you are profitable you don't need external capital to exist and thus don't need vc money

ajkjk 4y ago
I imagine it is not too different from borrowing against your profitability in order to grow faster.
alpha_squared 4y ago
A sibling comment touched on it, but I want to expand a little bit on that. Given two companies competing on the same problem, where one is profitable and one isn't, which is likely to come out on top? I'd argue it's the one that brings in the most money (via profits + funding). At early stages, funding will almost always be greater than profits. A profitable company that does not seek investment will eventually lose out to an unprofitable one that has funding because it will grow faster. At some point, the larger company will seek to optimize for profit, acquire the profitable company, or become the default company for the problem space (a near-monopoly). The sad state of current affairs is that the market is optimized to promote dominance, not capital efficiency.
- lostcolony 4y ago
  And with that changing, maybe we can have winners who make better products, or are more efficient with resources, or just...listen to their customers. Rather than merely being better at attracting VC capital. One can hope.
toss1 4y ago
You don't need the extra VC money, but often financing can get you to the point of addressing a far larger market far sooner. IF (big "IF") that more rapid growth is critical in your market segment, such as to obtain a better defensible moat by having far larger market share sooner, then VC can be a very good tradeoff. But if that is not your market dynamics, maintaining your freedom and growing organically can be best.
4y ago

puranjay 4y ago

Cheap liquidity is just unhealthy for the economy as a whole. Just allows zombie companies to thrive that create no long term value or productivity gains.

mobilio 4y ago
Also zombie companies merge between themselves and make super zombie companies.
robocat 4y ago
The issue is whether the gains of cheap money[1] (new valuable companies etcetera) outweigh the costs of cheap money (zombie companies etcetera). Your comment is unbalanced, because it only considers costs while ignoring gains, assuming that “cheap liquidity” also creates valuable gains. Or perhaps your comment is tautologically true: liquidity is defined as cheap when the economic returns are strongly negative overall? [1] “Cheap liquidity” is a terrible definition, because liquidity is predominantly considered a good thing in functioning markets, and cheap transactions are usually seen as good as well. I am assuming you mean “cheap liquidity” to mean “cheap money” (not a clear definition either) or that “raising funds is easy for startups and costs them relatively little”.
- formerkrogemp 4y ago
  Your “reply” is not very engaging, and it feels like you are mocking strawman shit that was never said. That is very unpleasant, and nobody likes that. You have read an awful lot into two sentences where there was only a short opinion. Not every opinion has to offer a 'balanced' take of pros and cons on every issue. If you must have an elephant-winded reply, surely you most likely know perfectly well what was meant by "cheap liquidity" in the sense of accommodative monetary policy, low interest rates, and quantitative easing more broadly. As has been seen around the world, this was intended to maintain asset levels, liquidity in key markets such as mortgages and bonds, reduce unemployment, and keep investor and consumer confidence buoyed. What we received in addition to this partially successful set of policies however were significantly cheap debt encouraging record household and corporate debt levels, near zero savings rates incentivizing spending and penalizing retirement savings, artificially inflated asset levels with the twofold consequences of encouraging risk taking at unprecedented levels to achieve quick returns and of outsized housing prices keeping many renting or paying a very large portion of their income for basic housing, and a slew of overpriced tech companies and startups, many of which were scams and never going to be profitable, that probably won't survive the current, ongoing market slowdown. Zombie companies, record wealth concentration, market control and production being concentrated into increasingly fewer firms through aggressive acquisitions and mergers, and rampant inflation are all ongoing consequences of this "cheap liquidity." Many companies have borrowed billions of dollars to raise dividends and to initiate stock buybacks as is their won't during low interest rates. However, many of these companies operating in critical industries also expect government bailouts without any strings attached or consequences given. Please do be pedantic and explain how all of this is positive, perhaps in a 'tautologically' true way and balanced manner.