8 ms·
What's wrong with selling goods and services for more than they cost?
by sowbug 3y ago
What's wrong with selling goods and services for more than they cost?
- codeptualize 3y agoThere is nothing wrong with that if that is the type of company you build from the start. VC funded startups generally want to have an exit/IPO to get a return for their investors and give their founders and employees an opportunity to cash out and de-risk. Without an exit or IPO that is a lot harder, especially for employees. It's about the expectation of everyone involved. Eventually every company needs to turn a profit, so for the company it might not make that big of a difference or even be better (if they can turn a profit which I assume Figma can), but for the investors and individuals involved it's a very different situation as it means their capital is pretty much stuck. And I bet a $20B exit would be life changing money for a lot of people involved.
- david38 3y ago“Everyone involved” includes customers
- codeptualize 3y agoThose should also know that this is a VC backed company that is going to try to provide a return on investment at some point. I do think its the right outcome and better for customers, the government is doing what it needs to do. But I still empathize with the people involved.
- heyoni 3y agoI think the issue is that when you buy up your competition there’s nothing stopping you from charging obscene prices in either direction. Charge low to wipe out potential competitors then high when there’s no one left. It very clearly stifles innovation and god knows we don’t regulate monopolies anymore.
- todd-davies 3y agoDropping prices below cost to wipe out competitors is predatory pricing which is prohibited under the antitrust laws. It's not always easy to prosecute, but it against the law nevertheless.
- tqi 3y agoWhat does that mean when it comes to software though? For something like Uber or Instacart that seems pretty straightforward, but for most tech companies I'm not sure how to determine what is predatory. Otherwise aren't all unprofitable companies selling below cost?
- todd-davies 3y agoYes, it's a bit of a problem for the field! Like many aspects of antitrust, predatory pricing applies cleanly for an industrial-era economy but as you point out, it's less clear how to translate it into the context of 21st century informational capitalism. A significant amount of legal and economic research in the field is asking these kinds of questions, and the answers are still forthcoming.
- tqi 3y agoGot it, that makes sense that its not well established. I saw from your profile that this is actually something you are studying, which is very cool! I've always wondered what the examples of this (predatory pricing -> drive out competition -> jack up prices) happening in practice are? I know Uber is the ur-example but that feels different from something like pure a saas? I wonder if as long as there is VC money out there, the viability of this strategy is limited because the moment incumbents (even ones with overwhelming market share) try to jack up prices, they immediately create an opportunity for a startup to undercut them.
- todd-davies 3y agoI can't think of a good example for a sass product. I'm sure it goes on though and I'm always interested in hearing about examples! A similar strategy which seems to be quite common these days is to cross-subsidise, which is when a firm sells one product at an artificially low price by using profits it makes from selling another product. If we think about cross-subsidisation, then lots of multi-product sass offerings might fall under our scope. That said, cross-subsidisation has economic benefits, so it's not clear-cut. As I said, to properly adjust to digital markets I think antitrust will have to identify new patterns of harm and invent new metrics to measure them. Predatory pricing (and similar offences) will always be useful, but they might just not fit well onto these kinds of markets.
- unethical_ban 3y agoWhat are you replying to? edit: Got it. I just woke up when I asked.
- saghm 3y agoI think they're responding to the question "If Adobe can't buy them, what other exit options do they have? Go public?". It's a bit tongue in cheek, but it's a fair point that we're in a weird place if the idea of founding a company with the goal of being sustainably profitable indefinitely rather than just being acquired by a much larger company is somehow the suboptimal backup plan rather than the main goal.
- quasse 3y agoThe parent comment poses a question: > If Adobe can't buy them, what other exit options do they have? Operating as a sustainable business that sells a good product for a profit is apparently not even on people's radar.
- hn_throwaway_99 3y agoI think this is my favorite comment of the year. We've all become so inured to the idea, especially in startup land, that the purpose of building a business is just the exit (and hopefully we can get out soon enough with someone else "holding the bag"). As you point out, if Figma can build a growing, profitable business, there is no reason they can't IPO at some point. But still, this shows how even the purpose of an IPO these days is completely opposite from the original intention. I.e. the original intention was to get access to public market funds to grow a business. Now it's usually just a method of "exit" to let retail investors take the lion's share of the risk - one only need to look at 95%+ of the past few years' SPAC deals to see how much of a "pump and dump" the market has become.
- Gooblebrai 3y agoTotally agree with you. It feels like nowadays businesses are not really about making a profitable business. But about vanity metrics and get a huge exit ASAP even if the business doesn't really survive without VC injections.
- endtime 3y ago> that the purpose of building a business is just the exit The majority of those affected negatively by this are not the founders, but the employees. Many of them may have turned down FAANG positions that come with predictable liquid RSUs. Some may have kids (in fact, I know someone at Figma who had a kid in the past year). Liquidity's not necessarily about opportunistically passing on risk...sometimes it's just about making a competitive living relative to being at a public company.
- pesfandiar 3y agoIt doesn't make anyone rich quickly.
- shostack 3y agoWell, if you're an employee joining because the stated path is to find a successful exit vs build a sustainable business, your comp expectations may have reflected that and been lower than normal.
- cipheredStones 3y agoStocks of successful companies typically pay dividends. That's what makes them valuable in the first place. Not being able to sell them just means you can't get the value up front as a lump sum.
- atomicnature 3y agoSanity prevails, at least in some HN comments; this is why I come to HN :)
- stephenr 3y agoCareful now, you'll give someone an aneurism with talk like that, dontchaknow? On a serious note, it's depressing how much a comment like this stands out from the crowd.
- newsclues 3y agoIt’s hard work! Much easier to give things away for free and sell the company.
- bdcravens 3y agoUnfortunately taking investment means you are accountable to their interests, not just your own. This includes the employees whose investment was opportunity cost.
- sackfield 3y agoThe employees are sold shares in the business that they expect to accrue a certain amount of value and with scale get very serious multiples in a liquidity event. With that promise broken the value proposition they originally signed up for no longer holds, some perhaps wasted the best years of their lives here when other options were on the table. If all you want to do is sell goods and services for more than they cost, then open up a bakery.
- occamsrazorwit 3y ago> If all you want to do is sell goods and services for more than they cost, then open up a bakery. What's the endgame to ever-increasing share value exactly? It's easy to say that a company should never stop growing, but there's no way that's a realistic ideal.
- noobermin 3y agoBeing downvoted is a great example of ideological thinking on HN because people get mad when you challenge underlying assumptions in their thinking. Remember that when e/acc nerds on twitter pretend they're just rational thinkere or whatever else they claim
- chipgap98 3y agoThere are other ways to give employees liquidity without being acquired or going public
- Drew_ 3y ago> The employees are sold shares in the business that they expect to accrue a certain amount of value and with scale get very serious multiples in a liquidity event. Sounds a lot like a pyramid scheme
- golergka 3y agoOwning just one company that does that has a much worse risk profile than owning a little bit of many companies that do that. That's why founders, angel investors and employees want to sell their share of the company to a huge fund and then invest their money back in that fund.
- paulddraper 3y agoNothing. Unless you are VC-funded. Because VCs expect+need an exit for their LPs.
- Applejinx 3y agoYes, thank you… I could even prune that down some more. What's wrong with selling goods and services? Not as a means to the accumulation of enough wealth to cash out and cease selling goods and services, which is what the startup world is trained to do. There's this hyper-focus on financialization, in that nothing means anything beyond the eventual payout, and all things are designed to either succeed or fail at going public and delivering that jackpot. What about… doing the thing? Making a good, doing a service? What if that thing is in itself a thing to do, a purpose to have? In that case if you are either breaking even and retaining control, or amortizing the cost against something else, then you're pursuing some kind of idea that is not itself 'money'. Why not that? Why not, directly, a thing that isn't money? I'm given to understand the idea of money is to accumulate the power and resources to do whatever thing your dream envisions. Well, how about cut out the middlemoney and do the thing?