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In medium to large companies, this trap typically emerges in situations where someone responsible for top-line revenue is not responsible for bottom-line revenu

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 14y 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 14y 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 14y 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.
- greghinch 14y ago
  > 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 think this is a function of the marked difference in needs between companies that deal in physical goods and those that offer services.
  - unclebucknasty 14y ago
    I agree. I'm pretty sure that's part if what tempts people to grow confused and distort the situation. It's funny, because it's all just business at the end of the day. Costs are costs. Revenue is revenue. Profit is profit. And, the one that gets the relative free pass and accolades is the one that has only costs and doesn't even know how it will ever drive revenue, let alone turn a profit.
georgemcbay 14y ago
Unfortunately, whether Groupon is the "ultimate lesson in the dangers" of this type of growth-at-all-cost business or a validation that you can make a shit-ton of money being a founder or early investor of such a business (while leaving others to hold the bag) depends upon personal perspective, whether or not you've got a chair when the music stops and how willing you are to be ethically, morally and in some cases legally flexible in the pursuit of personal wealth.

unclebucknasty 14y 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 14y 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 14y 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.
greghinch 14y ago
> 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 think this is a function of the marked difference in needs between companies that deal in physical goods and those that offer services.
- unclebucknasty 14y ago
  I agree. I'm pretty sure that's part if what tempts people to grow confused and distort the situation. It's funny, because it's all just business at the end of the day. Costs are costs. Revenue is revenue. Profit is profit. And, the one that gets the relative free pass and accolades is the one that has only costs and doesn't even know how it will ever drive revenue, let alone turn a profit.

georgemcbay 14y ago

Unfortunately, whether Groupon is the "ultimate lesson in the dangers" of this type of growth-at-all-cost business or a validation that you can make a shit-ton of money being a founder or early investor of such a business (while leaving others to hold the bag) depends upon personal perspective, whether or not you've got a chair when the music stops and how willing you are to be ethically, morally and in some cases legally flexible in the pursuit of personal wealth.