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Holy mackerel, does this ring true! Long ago, I had an internship at a company that focused primarily on daily revenue. An email would go out in the morning wi

• jonnathanson 13y ago
  In medium to large companies, this trap typically emerges in situations where someone responsible for top-line revenue is not responsible for bottom-line revenue (i.e., sometimes in organizations where Sales has little contact with, or accountability to, the other departments). In startups and small companies, the problem has been exacerbated by a relatively recent obsession with growth uber alles. Growth, growth, growth, with little regard to whether growth is sustainable, or to how costs scale with revenue. Groupon is the ultimate lesson in the dangers of putting financial growth on a pedestal at the expense of all other considerations. The problem is also made worse whenever founders run a company solely expecting to exit with a strategic buyout. If you're not really running the company as a going concern, you have less incentive to work toward long-term sustainable margins. We tend to glorify the big exit, and there's certainly a lot of hard work and skill that goes into achieving one -- but the highest peaks on the mountain of glory belong to whose who develop and run lasting businesses. A professor in a business class in college used to put it this way, and I'll paraphrase: "If I want to start the world's fastest growing company, I can do that right now. It's not hard. I'll just start a business selling $100 bills for $90." The metaphor was purposefully simplistic, but it's amazing how people seem to fall into similar business models without even considering that they have.
  • unclebucknasty 13y ago
    >In startups and small companies, the problem has been exacerbated by a relatively recent obsession with growth uber alles. Growth, growth, growth, with little regard to whether growth is sustainable, or to how costs scale with revenue. This is absolutely true. I'm getting downvoted farther down on this thread for a similar observation, and for attributing this obsession to the SV culture, in particular. This article is attempting to assert that Mr. Sherman was literally incapable of understanding basic math (i.e. the concept of margin). I think it's more likely that he was well-aware of the definition but was focused on growth at all costs. It's funny, because you look at companies like Twitter and Pinterest which come up to scale with absolutely no revenue model, let alone revenue. That seems to be "normal". Nothing to see here. But, when a company with actual revenue deeply discounts products to scale up, it's somehow shockingly bad. I'm not arguing that Ecomom had the right strategy here. I actually think they did not (partly for the reasons you mentioned). But, then in the same universe Pinterest could become the darling with millions of users and no revenue model? It's funny how twisted things are without people seeming to notice the contradictions.
    • mpyne 13y ago
      It is certainly wise to be concerned with having a way to bring income to a profit-seeking entity. But companies like Pinterest and Twitter have very different business realities than companies like Ecomom which market in real goods which they have to pay to buy, pay to ship, pay to hold and even apparently pay to sell and ship again. When your business is all-online, even at scale, it may be feasible to figure out what you want to do after you make your service big (and indispensable).
      • unclebucknasty 13y ago
        They are definitely different businesses. No argument there. But, there are still very real costs involved with the Pinterests/Twitters of the world--especially at scale. Money lost is money lost. Whether it's because your price point doesn't allow you to recoup inventory carrying costs or because you have costs with no revenue. But, I think the main point here is that it would seem more feasible to discount products and give up margin as a means to growth than it is to just grow with no idea of how you'll ever monetize. I guess I don't understand what good it is to have a big, indispensable business without knowing how or if it would ever make money. That we're having this discussion is kind of homage to how odd things have become.
• MattRogish 13y ago
  Also I forgot: the aforementioned company also was a physical goods company. Warehouses full of stuff, etc. There was an intense pressure to get rid of the inventory as quickly as possible (inventory turns) because most of the items were subject to "spoilage" or obsolescence. Yes, negative margins are bad, but they're a whole lot better than not selling the item at all (recovery). Inventory isn't as liquid as cash, and you can't use the excess inventory to pay salaries. There can be a real view of needing to liquidate just to get some cash to buy more inventory. If you're not careful, however, you can easily get into the mindset "we'll take a loss on this batch, but we'll make it up next time" - and next time is no different. Although folks are claiming the CEO didn't understand basic math I wonder if the problem was much more complex and nuanced. Haven't we all pulled an all-nighter to get a project "done" even though we knew that it would be buggy, and it would've been better to get good rest and merely admit to missing a deadline? I'm not excusing his alleged behavior, just suggesting that folks here might empathize a bit more.
  • unreal37 13y ago
    Also, keep in mind that he killed himself as his company imploded. It's a sad cautionary tale. Those who knew him spoke very highly of how nice he was. A genuinely nice guy. Hopefully most aren't judging him too harshly in light of that.
    • epochwolf 13y ago
      Just because someone is personally nice doesn't mean they should be running a business.