6 ms·

Isn't making money the best way to beat VC-funded companies? (Or any competitor for that matter.) In other words, sell something people will pay for right from

Isn't making money the best way to beat VC-funded companies? (Or any competitor for that matter.) In other words, sell something people will pay for right from the start. You won't be building SpaceX or Tesla but you can build 1Password. Software companies in particular don't have to be capital intensive.

throwup238 3y ago
Not when VC money subsidizes your competitors in the name of customer acquisition. They can slowly strangle you and then raise prices when you're dead. Classic trust behavior laundered through investment dollars.
- pphysch 3y ago
  Is there any hope for the culture changing? Interest rates are up. "Enshittification" started trending this year.
  - throwup238 3y ago
    I recommend reading The Republic for Which It Stands: The United States during Reconstruction and the Gilded Age [1] if you'd like some hope. All of this has happened before and all of this will happen again. It's mostly just part of the cycle between labor and capital. Teddy Roosevelt vs Bork. etc [1] https://www.amazon.com/Republic-Which-Stands-Reconstruction-1865-1896/dp/0199735816 https://www.amazon.com/Republic-Which-Stands-Reconstruction-...
    - slumberlust 3y ago
      A bit ironic you linked to Amazon no?
- advael 3y ago
  Frankly I think the only reason the revival of antitrust legislation in the current administration isn't already tackling this is because this pattern has already gone on so long that there are much more impactful anticompetitive behaviors being done by the biggest entrenched players and they have to triage. Most people even passingly familiar with SV's ecosystem recognize this pattern and that it's a problem, and by any sane antitrust interpretation it's blatantly illegal. Just hard to enforce in a regulatory environment where antitrust law enforcement went through 50 years of systematic gutting
  - danenania 3y ago
    How would this be legislated or enforced? You're not allowed to sell a product or service at a loss? Do we really want the government dictating a company's pricing? What about free tiers or loss leaders? Many small companies use these too. Not to mention that we're talking about private companies, so the government currently only has a very broad idea of unit economics from tax info. It would require a whole new level of reporting from private companies. Overall, I highly doubt such legislation would end up being beneficial for small companies, however good the intentions might be. Most likely it would make their lives even harder due to an increased reporting and compliance burden, and VC favorites would do even better by comparison since they can afford to hire people to fill out all the paperwork and make friends with the regulators.
    - roland35 3y ago
      The main way to prevent this is to end 0% interest rates. Now that the cost of capital is higher, I think we will see a lot less of these "ZIRP" (Zero Interest Rate Policy) strategies. Some companies like Uber seem to have been able to transition out of that, but we'll see about others like Instacart and Grubhub...
    - advael 3y ago
      First off, I think loss leaders are an almost textbook example of anticompetitive tactics indicative of detrimental dominance in a market. We should expect tactics that need regulation to seem normal, because if they weren't effective, they wouldn't be a problem in the first place. But also, given the pervasiveness of VC in this environment, and the tendency of investors to exert influence on the direction of businesses they invest in, the practices of VC and PE is where antitrust should aim
- hodgesrm 3y ago
  You don't need anti-trust violations to make this a problem. Well-funded companies can always undercut competitors at least for a while. The cure is to be able to survive at low[er] gross margins. Many VC-backed companies need monopoly rents to achieve return on investment.
- tqi 3y ago
  I know that is a thing that companies do, but what are the examples of this actually working out? I have a hard time working out the economics of it. Unless there are strong network effects that advantage incumbents, as soon as they raise prices isn't there immediately an opportunity for another VC to swoop in and undercut?
gen220 3y ago
Yes, this is the way. Unit-profitability and patience. It's a long game. You won't grow nearly as quickly, but most middling-sized markets (you mention 1Password as an example) favor the tortoise over the hare in the long-run.

throwup238 3y ago

Not when VC money subsidizes your competitors in the name of customer acquisition. They can slowly strangle you and then raise prices when you're dead. Classic trust behavior laundered through investment dollars.

pphysch 3y ago
Is there any hope for the culture changing? Interest rates are up. "Enshittification" started trending this year.
- throwup238 3y ago
  I recommend reading The Republic for Which It Stands: The United States during Reconstruction and the Gilded Age [1] if you'd like some hope. All of this has happened before and all of this will happen again. It's mostly just part of the cycle between labor and capital. Teddy Roosevelt vs Bork. etc [1] https://www.amazon.com/Republic-Which-Stands-Reconstruction-1865-1896/dp/0199735816 https://www.amazon.com/Republic-Which-Stands-Reconstruction-...
  - slumberlust 3y ago
    A bit ironic you linked to Amazon no?
advael 3y ago
Frankly I think the only reason the revival of antitrust legislation in the current administration isn't already tackling this is because this pattern has already gone on so long that there are much more impactful anticompetitive behaviors being done by the biggest entrenched players and they have to triage. Most people even passingly familiar with SV's ecosystem recognize this pattern and that it's a problem, and by any sane antitrust interpretation it's blatantly illegal. Just hard to enforce in a regulatory environment where antitrust law enforcement went through 50 years of systematic gutting
- danenania 3y ago
  How would this be legislated or enforced? You're not allowed to sell a product or service at a loss? Do we really want the government dictating a company's pricing? What about free tiers or loss leaders? Many small companies use these too. Not to mention that we're talking about private companies, so the government currently only has a very broad idea of unit economics from tax info. It would require a whole new level of reporting from private companies. Overall, I highly doubt such legislation would end up being beneficial for small companies, however good the intentions might be. Most likely it would make their lives even harder due to an increased reporting and compliance burden, and VC favorites would do even better by comparison since they can afford to hire people to fill out all the paperwork and make friends with the regulators.
  - roland35 3y ago
    The main way to prevent this is to end 0% interest rates. Now that the cost of capital is higher, I think we will see a lot less of these "ZIRP" (Zero Interest Rate Policy) strategies. Some companies like Uber seem to have been able to transition out of that, but we'll see about others like Instacart and Grubhub...
  - advael 3y ago
    First off, I think loss leaders are an almost textbook example of anticompetitive tactics indicative of detrimental dominance in a market. We should expect tactics that need regulation to seem normal, because if they weren't effective, they wouldn't be a problem in the first place. But also, given the pervasiveness of VC in this environment, and the tendency of investors to exert influence on the direction of businesses they invest in, the practices of VC and PE is where antitrust should aim
hodgesrm 3y ago
You don't need anti-trust violations to make this a problem. Well-funded companies can always undercut competitors at least for a while. The cure is to be able to survive at low[er] gross margins. Many VC-backed companies need monopoly rents to achieve return on investment.
tqi 3y ago
I know that is a thing that companies do, but what are the examples of this actually working out? I have a hard time working out the economics of it. Unless there are strong network effects that advantage incumbents, as soon as they raise prices isn't there immediately an opportunity for another VC to swoop in and undercut?

gen220 3y ago

Yes, this is the way. Unit-profitability and patience. It's a long game. You won't grow nearly as quickly, but most middling-sized markets (you mention 1Password as an example) favor the tortoise over the hare in the long-run.