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I'm not an economist, so I'm looking out for an informed opinion on this. What are you basing this on? I either see the dismissive takes or the doomsayer comme

I'm not an economist, so I'm looking out for an informed opinion on this. What are you basing this on? I either see the dismissive takes or the doomsayer comments but it all just seems like speculation. I'm not sure if we're in a genuine period of tech decline or it's just overblown companies trimming the fat.

time_to_smile 4y ago
I'm surprised people working in tech can not see this coming, haven't you ever looked at the current tech industry and thought to yourself "something is not right here?" Tech has been a massive game of shuffling around VC money to create the illusion of a massive part of the economy when it's really all the same money being shuffled around looking for profit and failing to find it. The heart of the problem boils down to this: There are basically two types of tech companies a.) unprofitable ones, and b.) profitable ones who make most of their money from companies in group a. For over a decade investors have been focusing more and more on growth while completely forgetting the basics about how a business need to run. This same issue happened in the dotcom bust, PG even has a great description of this from a earlier essay [0]: > It was not just our price to earnings ratio that was bogus. Half our earnings were too. Not in the Enron way, of course. The finance guys seemed scrupulous about reporting earnings. What made our earnings bogus was that Yahoo was, in effect, the center of a Ponzi scheme. Investors looked at Yahoo's earnings and said to themselves, here is proof that Internet companies can make money. So they invested in new startups that promised to be the next Yahoo. And as soon as these startups got the money, what did they do with it? Buy millions of dollars worth of advertising on Yahoo to promote their brand. Result: a capital investment in a startup this quarter shows up as Yahoo earnings next quarter—stimulating another round of investments in startups. I remember the dotcom bust and the big difference between then and now is that the duration of the bubble was much smaller during the dotcom. People back then proclaimed we where in a "new economy" where profits didn't matter anymore. The boom was only a few years and so those critics where proven correct in a short window of time. This time we've been in a bubble so long people don't even remember that companies need to make profits and be sustainable. During the period of cheap money VCs flooded the industry with so much cash it started to get weird. Wayfair is a great example of this, they had 150 data scientists at one point, what in the world does a furniture reseller need with that many DS people? Now we're starting to see the conditions that allowed this bubble to form relax very quickly. Not only is cheap money no longer a thing, but the consumers who have been gleefully pouring their extra money into apps that don't quite make sense are starting to feel their wallets get tighter (actually the data looks like they're starting to max out their credit and being forced to reduce spending). And that's just tech. We truly are in an "everything bubble" [1] were asset classes across the board are wildly overvalued. Unlike the dotcom, this will not stop with tech. 0. http://paulgraham.com/bubble.html http://paulgraham.com/bubble.html 1. https://en.wikipedia.org/wiki/Everything_bubble https://en.wikipedia.org/wiki/Everything_bubble
- makestuff 4y ago
  Yeah if anyone has worked at a B2B SaaS startup you would see fast that a large portion of the VC money is just buying other SaaS startup products. We were basically required to buy all of the products our investors also invested in, and in return they would buy ours. Eventually all of those $10-20/user/month subscriptions add up and really hurt your runway. When I left they were paying for around 30 different subscriptions. Don't get me wrong most of them were useful and cool products, but they definitely were not required.
  - icedchai 4y ago
    I briefly worked at a self-proclaimed newly minted unicorn, and every other day I was getting an invite to a new SaaS product for something. It was incredible.
  - seti0Cha 4y ago
    I joined a startup a while back after being in a bigger company for many years and I was baffled by the number of weird SaaS products in use, often for one small function. At least for a couple of these SaaS companies, I later heard, were run by friends of our former CTO. So maybe this isn't just a VC thing, but a startup culture thing. You buy my marginally useful product, I'll buy yours.
    - makestuff 4y ago
      Yeah thinking about it more, I agree with you it is both. We 100% purchased products because the CTO was friends with the other CTO. The other thing was the sales people jumped between startups and would just sell to their same contact list they always have. I wouldn't be surprised they did deals where we bought their product and they bought ours for the same price.
    - georgeecollins 4y ago
      Also, the last start up I worked for used all the products of other start ups funded by the same VCs. It's like a keiretsu of early adopters.
wooque 4y ago
Most companies have solutions looking for problems and/or are selling $1 for 50c, that worked for a while in an economy fueled with cheap VC money, but the dance is over.
- noodleman 4y ago
  > informed opinion

time_to_smile 4y ago

I'm surprised people working in tech can not see this coming, haven't you ever looked at the current tech industry and thought to yourself "something is not right here?" Tech has been a massive game of shuffling around VC money to create the illusion of a massive part of the economy when it's really all the same money being shuffled around looking for profit and failing to find it. The heart of the problem boils down to this: There are basically two types of tech companies a.) unprofitable ones, and b.) profitable ones who make most of their money from companies in group a. For over a decade investors have been focusing more and more on growth while completely forgetting the basics about how a business need to run. This same issue happened in the dotcom bust, PG even has a great description of this from a earlier essay [0]: > It was not just our price to earnings ratio that was bogus. Half our earnings were too. Not in the Enron way, of course. The finance guys seemed scrupulous about reporting earnings. What made our earnings bogus was that Yahoo was, in effect, the center of a Ponzi scheme. Investors looked at Yahoo's earnings and said to themselves, here is proof that Internet companies can make money. So they invested in new startups that promised to be the next Yahoo. And as soon as these startups got the money, what did they do with it? Buy millions of dollars worth of advertising on Yahoo to promote their brand. Result: a capital investment in a startup this quarter shows up as Yahoo earnings next quarter—stimulating another round of investments in startups. I remember the dotcom bust and the big difference between then and now is that the duration of the bubble was much smaller during the dotcom. People back then proclaimed we where in a "new economy" where profits didn't matter anymore. The boom was only a few years and so those critics where proven correct in a short window of time. This time we've been in a bubble so long people don't even remember that companies need to make profits and be sustainable. During the period of cheap money VCs flooded the industry with so much cash it started to get weird. Wayfair is a great example of this, they had 150 data scientists at one point, what in the world does a furniture reseller need with that many DS people? Now we're starting to see the conditions that allowed this bubble to form relax very quickly. Not only is cheap money no longer a thing, but the consumers who have been gleefully pouring their extra money into apps that don't quite make sense are starting to feel their wallets get tighter (actually the data looks like they're starting to max out their credit and being forced to reduce spending). And that's just tech. We truly are in an "everything bubble" [1] were asset classes across the board are wildly overvalued. Unlike the dotcom, this will not stop with tech. 0. http://paulgraham.com/bubble.html http://paulgraham.com/bubble.html 1. https://en.wikipedia.org/wiki/Everything_bubble https://en.wikipedia.org/wiki/Everything_bubble

makestuff 4y ago
Yeah if anyone has worked at a B2B SaaS startup you would see fast that a large portion of the VC money is just buying other SaaS startup products. We were basically required to buy all of the products our investors also invested in, and in return they would buy ours. Eventually all of those $10-20/user/month subscriptions add up and really hurt your runway. When I left they were paying for around 30 different subscriptions. Don't get me wrong most of them were useful and cool products, but they definitely were not required.
- icedchai 4y ago
  I briefly worked at a self-proclaimed newly minted unicorn, and every other day I was getting an invite to a new SaaS product for something. It was incredible.
- seti0Cha 4y ago
  I joined a startup a while back after being in a bigger company for many years and I was baffled by the number of weird SaaS products in use, often for one small function. At least for a couple of these SaaS companies, I later heard, were run by friends of our former CTO. So maybe this isn't just a VC thing, but a startup culture thing. You buy my marginally useful product, I'll buy yours.
  - makestuff 4y ago
    Yeah thinking about it more, I agree with you it is both. We 100% purchased products because the CTO was friends with the other CTO. The other thing was the sales people jumped between startups and would just sell to their same contact list they always have. I wouldn't be surprised they did deals where we bought their product and they bought ours for the same price.
  - georgeecollins 4y ago
    Also, the last start up I worked for used all the products of other start ups funded by the same VCs. It's like a keiretsu of early adopters.

wooque 4y ago

Most companies have solutions looking for problems and/or are selling $1 for 50c, that worked for a while in an economy fueled with cheap VC money, but the dance is over.

noodleman 4y ago
> informed opinion