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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...

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
Often it's the desire/need for an extremely high growth rate (often imposed on founders by investors) that makes an overwise sustainable business model unviable. > Many business models must pass through these phases. I think there are very few categories of companies that ~must~ go through a "Growth Phase". Sure, there are rocket companies like SpaceX and Uber/marketplaces that only work at scale... but the majority of internet software companies cost very little to get up and running and have very, very high gross margins. Meaning for many companies, the only thing stopping them from immediately entering the "Sustainable Phase" is an incessant need to maintain extremely high growth through excessive spending.
AussieWog93 4y ago
>Profitable from the first client is... uncommon. Is it? Outside of Silicon Valley, I don't think there are many businesses that deliberately lose money in an unsustainable way. I know all of mine have been (at least marginally) profitable from day one, at least.
- jefftk 4y ago
  Expenses of $100k/m with income of $10k/m can definitely happen outside SV. Often it is even more extreme, where you spend millions of dollars before you earn anything. Let's say I have an idea for a new type of air purifier. I will need to build prototypes, test them, sort out manufacturing, build large numbers, get agreements with various distributors, and all this while not bringing in much if any money yet. If all goes well, however, the investment pays off and once I'm making my new product at scale I more than make up for those initial costs.
- edanm 4y ago
  It's not about losing money, it's about needing to invest money before you are earning your investment back. In software it's development costs. Outside silicon valley, in the non-techie world, there are many things that work the same way. Eg real estate - building a building is an upfront investment of piles of money that the building doesn't earn back for years. Or eg opening a McDonald's. The main difference in tech startups is that it's not just entrepreneurship, it's innovation too, so it's unknown whether the product will earn back the money. But sometimes McDonald's falls, builfings fail, etc. The odds there are better though.
  - Barrin92 4y ago
    if you're building real estate at the very least you have the actual building itself. This isn't comparable to the ephemeral "I'll sell you two dollars for one dollar <something something> we'll monetize the users" There is no equivalent to MoviePass in the rest of the economy aside from literal MLM. They mailed people a credit card for what was it ten bucks a month, you could watch movies worth more than that with it, and that literally was their business. And there's plenty of startups out there right now that basically work the same way. The 'business model' is gift people free stuff, so investors gift you free money and then hope you can somehow IPO and dump it on the retail investors.
  - Swizec 4y ago
    > But sometimes McDonald's falls, builfings fail, etc. The odds there are better though. The 6x6 mall in San Francisco is a great example of this. Someone built an entire mall next block to Westfield and it sat empty for 6 years. It's still empty today, but IKEA signs showed up a few months ago so it looks like San Francisco is getting a downtown IKEA. Upfront investment: $150,000,000 according to [1]. Never got a single tenant or opened its doors. [1] https://archive.curbed.com/2020/7/23/21334508/dead-mall-6x6-san-francisco https://archive.curbed.com/2020/7/23/21334508/dead-mall-6x6-...
cosmodisk 4y ago
Most businesses operate this way,where you need to be profitable on day one( or within a year). It's only the biggest, the most outrageous or boundary pushing companies that need to be super capitalised to eventually reach profitability. It's a fairly recent phenomena.

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

Often it's the desire/need for an extremely high growth rate (often imposed on founders by investors) that makes an overwise sustainable business model unviable. > Many business models must pass through these phases. I think there are very few categories of companies that ~must~ go through a "Growth Phase". Sure, there are rocket companies like SpaceX and Uber/marketplaces that only work at scale... but the majority of internet software companies cost very little to get up and running and have very, very high gross margins. Meaning for many companies, the only thing stopping them from immediately entering the "Sustainable Phase" is an incessant need to maintain extremely high growth through excessive spending.

AussieWog93 4y ago

>Profitable from the first client is... uncommon. Is it? Outside of Silicon Valley, I don't think there are many businesses that deliberately lose money in an unsustainable way. I know all of mine have been (at least marginally) profitable from day one, at least.

jefftk 4y ago
Expenses of $100k/m with income of $10k/m can definitely happen outside SV. Often it is even more extreme, where you spend millions of dollars before you earn anything. Let's say I have an idea for a new type of air purifier. I will need to build prototypes, test them, sort out manufacturing, build large numbers, get agreements with various distributors, and all this while not bringing in much if any money yet. If all goes well, however, the investment pays off and once I'm making my new product at scale I more than make up for those initial costs.
edanm 4y ago
It's not about losing money, it's about needing to invest money before you are earning your investment back. In software it's development costs. Outside silicon valley, in the non-techie world, there are many things that work the same way. Eg real estate - building a building is an upfront investment of piles of money that the building doesn't earn back for years. Or eg opening a McDonald's. The main difference in tech startups is that it's not just entrepreneurship, it's innovation too, so it's unknown whether the product will earn back the money. But sometimes McDonald's falls, builfings fail, etc. The odds there are better though.
- Barrin92 4y ago
  if you're building real estate at the very least you have the actual building itself. This isn't comparable to the ephemeral "I'll sell you two dollars for one dollar <something something> we'll monetize the users" There is no equivalent to MoviePass in the rest of the economy aside from literal MLM. They mailed people a credit card for what was it ten bucks a month, you could watch movies worth more than that with it, and that literally was their business. And there's plenty of startups out there right now that basically work the same way. The 'business model' is gift people free stuff, so investors gift you free money and then hope you can somehow IPO and dump it on the retail investors.
- Swizec 4y ago
  > But sometimes McDonald's falls, builfings fail, etc. The odds there are better though. The 6x6 mall in San Francisco is a great example of this. Someone built an entire mall next block to Westfield and it sat empty for 6 years. It's still empty today, but IKEA signs showed up a few months ago so it looks like San Francisco is getting a downtown IKEA. Upfront investment: $150,000,000 according to [1]. Never got a single tenant or opened its doors. [1] https://archive.curbed.com/2020/7/23/21334508/dead-mall-6x6-san-francisco https://archive.curbed.com/2020/7/23/21334508/dead-mall-6x6-...

cosmodisk 4y ago

Most businesses operate this way,where you need to be profitable on day one( or within a year). It's only the biggest, the most outrageous or boundary pushing companies that need to be super capitalised to eventually reach profitability. It's a fairly recent phenomena.