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Isn't the pre-IPO / pre-acquisition playbook to cut staff lower than the optimum level to show profitability? But I'm spitballing here, anyone know more about

Isn't the pre-IPO / pre-acquisition playbook to cut staff lower than the optimum level to show profitability? But I'm spitballing here, anyone know more about whether Bandcamp was bloated? Bandcamp was shown to be profitable quite recently. Hard to justify slashing staff in half with that in mind.

theolivenbaum 3y ago
From what I see, it's exactly the opposite. It's more like we hired all these people because we're growing so fast, so please give us money
- heleninboodler 3y ago
  That doesn't sound like a powerful negotiating position, though; it sounds like desperation. Why would you do that intentionally?
  - jacobr1 3y ago
    If the top line is also growing fast, and you have a good story on the unit-economic, part of the narrative is that you can eventually reduce costs and increase margin. It is hard from the outside to distinguish between Amazon style "we are investing all our profits back into R&D so we can take over the world" and "We are bloating our team to grow at all costs and don't know what levers to pull"
    - lotsofpulp 3y ago
      > It is hard from the outside to distinguish between Amazon style "we are investing all our profits back into R&D so we can take over the world" and "We are bloating our team to grow at all costs and don't know what levers to pull" Considering Amazon was building physical warehouses, buying land, literally delivering to people, executing deployment of AWS which Netflix was famously using, all while being a publicly listed company with audited public financials I think Amazon’s style is easy to distinguish from the outside.
      - jeremyjh 3y ago
        It really doesn't sound easy to me to tell this from the outside. What if the R&D investments are all garbage? It is hard to scale an engineering org effectively, it can take off and start building some microservice fortress that never yields any business value if it has the wrong leadership.
        lotsofpulp 3y ago
        Because they were publicly listed with public financials, you know they were not losing money: https://www.macrotrends.net/stocks/charts/AMZN/amazon/profit-margins https://www.macrotrends.net/stocks/charts/AMZN/amazon/profit... You also know from using Amazon that they were near flawlessly executing 2 day shipping across the US with prices competitive with Walmart and other successful retailers. They also had a pricing advantage against incumbents due to not having to collect sales tax in all states until 2016. It’s mostly the verifiably not losing money part though so you knew they weren’t overextending, and they were delivering what people wanted.
        MichaelZuo 3y ago
        There are third party appraisals for the value of physical things, and even quite a bit of software stuff nowdays.
iainctduncan 3y ago
Honestly, it's all over the map. Depends on the reason for sale and the reason for purchase. They are looking for "synergies" and a very common one "you already have this thing, so you can cut it out of this company after you acquire and use yours". It is very possible that Epic had plans that involved hyper-growth, now realized those are not going anywhere, and is happy to demonstrate that a chopped up Bandcamp is a good deal. I have literally done diligences where part of our role was to weigh in on how much could be slashed, which is not very pleasant, but like I said, when the growth was dumb in the first place it can be the right call.
s1artibartfast 3y ago
There are a lot of counter-intuitive pre-IPO behaviors. Another one is to raise a huge amount of cash through unnecessary funding rounds. You would think that massive dilution for no gain would be a bad idea, but there are usually a lot of perverse incentives at play
- ghostbrainalpha 3y ago
  Could you give an example of 1 of the perverse incentives that could cause that? It's very interesting.
  - s1artibartfast 3y ago
    A lot of the time IPO investors, both public and institutional, value company cash on hand at more than $1 per dollar during an IPO. An extra 500 million in the bank might make the company IPO for a billion dollars more. Peloton is an example of a company that did a huge unnecessary fundraise before IPO. I'm sure it makes a bunch of numbers and ratios look better on paper. Psychologically, I think it also helps companies lock in evaluation closer to their IPO Target for when people look back at the history of the company. It's pretty similar too the idea of inflating employee head count. You can say "we made $10 million with only 10 employees last year. Wait until you see how much money you're going to make now that we have a hundred employees"
barrkel 3y ago
You want to sell when you can show growth because that justifies a higher multiple. If you're cutting people, it means you don't have enough growth opportunities to use those people for. It's the opposite signal. You might need to sell, which may change the calculation.
hatsix 3y ago
Shown how? I keep seeing reference to a webpage on Bandcamp that was published over 5 years ago.
onlyrealcuzzo 3y ago
At one point - in the not too distant past - a common way of valuing tech startups was $1M per engineer... You can see why companies might have been incentivized back then to hire anything with a pulse that claimed to be an engineer.
smadge 3y ago
When a company isn't profitable you hire developers to build a product which can make you profitable. When a company is profitable, you fire all the developers and start collecting dividends.
- artyom 3y ago
  Agreed but from what I've seen most layoffs were on the content/writer/social side of things. Sounds to me that the focus is now on being a platform and not an outlet. I still have no clue what Epic wanted to do with it.

theolivenbaum 3y ago

From what I see, it's exactly the opposite. It's more like we hired all these people because we're growing so fast, so please give us money

heleninboodler 3y ago
That doesn't sound like a powerful negotiating position, though; it sounds like desperation. Why would you do that intentionally?
- jacobr1 3y ago
  If the top line is also growing fast, and you have a good story on the unit-economic, part of the narrative is that you can eventually reduce costs and increase margin. It is hard from the outside to distinguish between Amazon style "we are investing all our profits back into R&D so we can take over the world" and "We are bloating our team to grow at all costs and don't know what levers to pull"
  - lotsofpulp 3y ago
    > It is hard from the outside to distinguish between Amazon style "we are investing all our profits back into R&D so we can take over the world" and "We are bloating our team to grow at all costs and don't know what levers to pull" Considering Amazon was building physical warehouses, buying land, literally delivering to people, executing deployment of AWS which Netflix was famously using, all while being a publicly listed company with audited public financials I think Amazon’s style is easy to distinguish from the outside.
    - jeremyjh 3y ago
      It really doesn't sound easy to me to tell this from the outside. What if the R&D investments are all garbage? It is hard to scale an engineering org effectively, it can take off and start building some microservice fortress that never yields any business value if it has the wrong leadership.
      - lotsofpulp 3y ago
        Because they were publicly listed with public financials, you know they were not losing money: https://www.macrotrends.net/stocks/charts/AMZN/amazon/profit-margins https://www.macrotrends.net/stocks/charts/AMZN/amazon/profit... You also know from using Amazon that they were near flawlessly executing 2 day shipping across the US with prices competitive with Walmart and other successful retailers. They also had a pricing advantage against incumbents due to not having to collect sales tax in all states until 2016. It’s mostly the verifiably not losing money part though so you knew they weren’t overextending, and they were delivering what people wanted.
      - MichaelZuo 3y ago
        There are third party appraisals for the value of physical things, and even quite a bit of software stuff nowdays.

iainctduncan 3y ago

Honestly, it's all over the map. Depends on the reason for sale and the reason for purchase. They are looking for "synergies" and a very common one "you already have this thing, so you can cut it out of this company after you acquire and use yours". It is very possible that Epic had plans that involved hyper-growth, now realized those are not going anywhere, and is happy to demonstrate that a chopped up Bandcamp is a good deal. I have literally done diligences where part of our role was to weigh in on how much could be slashed, which is not very pleasant, but like I said, when the growth was dumb in the first place it can be the right call.

s1artibartfast 3y ago

There are a lot of counter-intuitive pre-IPO behaviors. Another one is to raise a huge amount of cash through unnecessary funding rounds. You would think that massive dilution for no gain would be a bad idea, but there are usually a lot of perverse incentives at play

ghostbrainalpha 3y ago
Could you give an example of 1 of the perverse incentives that could cause that? It's very interesting.
- s1artibartfast 3y ago
  A lot of the time IPO investors, both public and institutional, value company cash on hand at more than $1 per dollar during an IPO. An extra 500 million in the bank might make the company IPO for a billion dollars more. Peloton is an example of a company that did a huge unnecessary fundraise before IPO. I'm sure it makes a bunch of numbers and ratios look better on paper. Psychologically, I think it also helps companies lock in evaluation closer to their IPO Target for when people look back at the history of the company. It's pretty similar too the idea of inflating employee head count. You can say "we made $10 million with only 10 employees last year. Wait until you see how much money you're going to make now that we have a hundred employees"

barrkel 3y ago

You want to sell when you can show growth because that justifies a higher multiple. If you're cutting people, it means you don't have enough growth opportunities to use those people for. It's the opposite signal. You might need to sell, which may change the calculation.

hatsix 3y ago

Shown how? I keep seeing reference to a webpage on Bandcamp that was published over 5 years ago.

onlyrealcuzzo 3y ago

At one point - in the not too distant past - a common way of valuing tech startups was $1M per engineer... You can see why companies might have been incentivized back then to hire anything with a pulse that claimed to be an engineer.

smadge 3y ago

When a company isn't profitable you hire developers to build a product which can make you profitable. When a company is profitable, you fire all the developers and start collecting dividends.

artyom 3y ago
Agreed but from what I've seen most layoffs were on the content/writer/social side of things. Sounds to me that the focus is now on being a platform and not an outlet. I still have no clue what Epic wanted to do with it.