3 ms·

Building a particular type of company - a tech startup. I'd argue that we need to apply this to companies too. Stop building startups (which start losing money

Building a particular type of company - a tech startup. I'd argue that we need to apply this to companies too. Stop building startups (which start losing money and may never ever make a profit in the process of scaling) and start creating companies (which make a profit ASAP and may never scale).

shooker435 1y ago
There's probably a middle ground here. Making a profit ASAP is only really possible if you're selling expertise, such as consulting. I really like the emerging term, "seed strapping" which aims to address this conundrum in the startup world: raise just enough to build the first iteration, then act like a bootstrapped business.
timr 1y ago
"Tech startups" that make enough money to be interesting [1], but do not have the property of being a winner-take-all market, are the truly magical unicorns of software. If you have one, you should covet it and guard it viciously, because otherwise someone with more money is coming to eat your lunch [2][3]. OP wasn't talking about this kind of thing, of course. The phenomenon of hobby projects being "startups" has always been a weird fit. [1] I define this at least as "supports more than one person's salary in perpetuity," but would probably add some things like margin requirements if I thought about it more. Obviously you can exist as a consultant charging by the hour, and that's not what either of us is talking about. [2] The only examples of this I've personally ever seen have been dominant players in niche markets with high bars to entry. So they weren't hyper-growth unicorns, but weren't really your definition of "companies", either. You don't get to these kinds of businesses by aiming to be one - you get there by trying for something bigger and topping out the market. [3] Consider the phenomenon of the small vet clinic, which is rapidly ceasing to exist. Private equity has been steadily hoovering up these relatively high-margin, low-regulation businesses for the same economic reasons that software companies get big. If you try to create a vet clinic, you will be assimilated or crushed by a bigger player with a brand and the ability to undercut your prices.
- dghlsakjg 1y ago
  Is the vet clinic thing a lasting phenomenon? Are independent vet clinics not economically viable or is there just a VC/PE market imbalance where capital is overbidding for a business that doesn't really have a great moat. I would be perfectly willing to believe that if you knock on the door of a perfectly viable business and offer them more than it's worth as well as a salaried position at the new business, (almost) no one says no. I think the cash merry go round will stop eventually because the moat, in as much as there is one, is the vet themselves, not the business. If my vet leaves and opens a new practice, I will follow the person. Vet services don't really scale either, you can hit efficiencies with admin, but I'm sure a software company is willing to eat the PE firm's lunch there. With software, costs are heavily weighted to the fixed side. With vets, seeing twice the number of dogs takes twice the number of vet hours, vet tech hours, etc.
  - timr 1y ago
    Vet clinics have a moat (exactly as you're implying): the customer relationship. That relationship, plus optimization on the fixed costs, gives an incentive to acquire the practice, maintain the staff as employees, and collect the operating margin. It's not like you really care if your favored pet doctor works for Brand A or Brand B, and -- let's be honest -- you're price sensitive. No matter what you say, there's a limit to how much you'll pay in order to follow your favorite vet, because veterinary services are a commodity, and your pet doesn't know the difference. So there's price pressure as well. You're right that vet clinics aren't like software in the variable cost structure, but that just makes the software business more attractive for consolidation, not less. Bigger players will have the customer relationship, lower fixed costs, and high margins, with little threat of competition.
    - Ekaros 1y ago
      Also increasingly discoverability. New customers must be able to find you. And how online advertising and SEO is going established player which has resources to waste will beat you.

shooker435 1y ago

There's probably a middle ground here. Making a profit ASAP is only really possible if you're selling expertise, such as consulting. I really like the emerging term, "seed strapping" which aims to address this conundrum in the startup world: raise just enough to build the first iteration, then act like a bootstrapped business.

timr 1y ago

"Tech startups" that make enough money to be interesting [1], but do not have the property of being a winner-take-all market, are the truly magical unicorns of software. If you have one, you should covet it and guard it viciously, because otherwise someone with more money is coming to eat your lunch [2][3]. OP wasn't talking about this kind of thing, of course. The phenomenon of hobby projects being "startups" has always been a weird fit. [1] I define this at least as "supports more than one person's salary in perpetuity," but would probably add some things like margin requirements if I thought about it more. Obviously you can exist as a consultant charging by the hour, and that's not what either of us is talking about. [2] The only examples of this I've personally ever seen have been dominant players in niche markets with high bars to entry. So they weren't hyper-growth unicorns, but weren't really your definition of "companies", either. You don't get to these kinds of businesses by aiming to be one - you get there by trying for something bigger and topping out the market. [3] Consider the phenomenon of the small vet clinic, which is rapidly ceasing to exist. Private equity has been steadily hoovering up these relatively high-margin, low-regulation businesses for the same economic reasons that software companies get big. If you try to create a vet clinic, you will be assimilated or crushed by a bigger player with a brand and the ability to undercut your prices.

dghlsakjg 1y ago
Is the vet clinic thing a lasting phenomenon? Are independent vet clinics not economically viable or is there just a VC/PE market imbalance where capital is overbidding for a business that doesn't really have a great moat. I would be perfectly willing to believe that if you knock on the door of a perfectly viable business and offer them more than it's worth as well as a salaried position at the new business, (almost) no one says no. I think the cash merry go round will stop eventually because the moat, in as much as there is one, is the vet themselves, not the business. If my vet leaves and opens a new practice, I will follow the person. Vet services don't really scale either, you can hit efficiencies with admin, but I'm sure a software company is willing to eat the PE firm's lunch there. With software, costs are heavily weighted to the fixed side. With vets, seeing twice the number of dogs takes twice the number of vet hours, vet tech hours, etc.
- timr 1y ago
  Vet clinics have a moat (exactly as you're implying): the customer relationship. That relationship, plus optimization on the fixed costs, gives an incentive to acquire the practice, maintain the staff as employees, and collect the operating margin. It's not like you really care if your favored pet doctor works for Brand A or Brand B, and -- let's be honest -- you're price sensitive. No matter what you say, there's a limit to how much you'll pay in order to follow your favorite vet, because veterinary services are a commodity, and your pet doesn't know the difference. So there's price pressure as well. You're right that vet clinics aren't like software in the variable cost structure, but that just makes the software business more attractive for consolidation, not less. Bigger players will have the customer relationship, lower fixed costs, and high margins, with little threat of competition.
  - Ekaros 1y ago
    Also increasingly discoverability. New customers must be able to find you. And how online advertising and SEO is going established player which has resources to waste will beat you.