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Wow, this article is kind of clueless. First, the VC money isn't going to cost-cutting - it's going to growth. In theory, virtualizing the business processes s
by beat 13y ago
Wow, this article is kind of clueless.
First, the VC money isn't going to cost-cutting - it's going to growth. In theory, virtualizing the business processes should lead to higher efficiency and naturally lower costs. This model has been proven out in other fields - it's the Big Box model of retail that created giants like Wal-Mart (although a better comparison would be specialist big box retail like Guitar Center). So the VC money is going to building out the business model infrastructure, not selling a sandwich cheaper than the local shops.
Second, these businesses on the edge don't have enough market share to make a massive dent in the local market - and it's ludicrous to think that they could do so by losing money on transactions at scale. By the time they pose a real threat to local business, they will be profitable. They must be, because the markets are too large to be subsidized by VC forever.
Third, a lot of the businesses that are threatened are not "mom and pop" at all. Taxis? That's a local oligarchy protected by politics. Food delivery? Ever heard of Domino's Pizza or Jimmy John's?
Fourth, these can create new opportunities for local business. I can now get food delivered to my door by one of these startups, but the food comes from excellent local restaurants (the mom and pop ideal) that otherwise could not possibly get a delivery service working profitably. They've outsourced the business model, not the food prep.
And then there's the handwringing about how the long-term professional institutional investors who run pension funds and the like might go broke on venture capital, not realizing what a tiny sliver of that market VC is - it's a diversification strategy, not a core. The biggest concern would be if a VC collapse led to a broader stock market collapse, a la the dotcom era. Not likely.
Yeah, dumb article.
- jbooth 13y agoYou totally missed the point of the article. The lunch that guy described is impossible to deliver for $8 in the US, and especially in SF. That business makes no sense, ever. Losing money while making a unit profit on that lunch, ok, let's see where that goes. Getting my business by selling to me below cost? I'll do business with you all day but as soon as you raise the price, I'll switch to the next startup offering me a subsidized lunch. There's nothing 'long view' about that. No vision there. This trend, if it's as big as the article makes it seem, is way more worrying to me in a 'bubble' sense than the color.com thing.
- beat 13y agoNo, I got that. You missed the point of my critique. It is impossible to scale that $8 delivery lunch large enough to provide any significant threat to local business. There simply isn't enough VC money for the hundreds of millions that would take. The scruffy little startup trying that model will either raise prices long before profitability, or will run out of money and disappear. But a standardized delivery model that is a straightforward service charge, made possible by modern tech? Hell yeah, that's a good business model - and it's good for the mom and pop restaurants too. Now, if you can point me to the mom and pop food delivery service...
- jbooth 13y agoWhether or not you want to call it 'significant', every $15 meal they sell for $8 is either $15 or $8 in revenue that a legitimate business didn't get. This phenomenon literally breaks capitalism, by routing money from those who can create a product for that price to those who are subsidized, because they're 'innovative' enough to make a cookie cutter mobile app and wear skinny jeans with fashionable glasses. Now, a standardized delivery model, with a straightforward service charge, and all that? Yeah, great business model. Seamless web is around. They're doing great, and add value to the economy. What value do these clowns add? You don't seem to disagree with any of this.. your position is that since they'll be out of business soon, the damage is limited? It's still damage, and still stupid.
- beat 13y agoBy the same token, you could argue that investment screws up the software market, because companies operating at a loss hire employees they couldn't otherwise afford. Again, a: they cannot sell at a loss at scale, and b: venture capital is invested with the expectation of building business model infrastructure, not being a fly trying to beat whales on cost. If they're actually blowing VC money on underpricing commodities like food rather than hiring programmers and marketing, their VCs should be ripping them a new one.
- 13y ago
- ForHackernews 13y agoIt sounds like for a lot of these companies, their idea for "growth" is cost-cutting. This isn't even economics 101, it's simple common sense: if something is cheap, more people will buy it. It turns out selling at below-cost prices is a fantastic (though ultimately futile) "growth hack".
- beat 13y agoIf that's true, then they will find out why it's a losing strategy when they run out of money, and their VCs will hopefully learn not to fund companies whose business model starts with loss-leading commodities against established market giants. But I find it hard to believe VCs are that stupid.
- ForHackernews 13y agoBut I find it hard to believe VCs are that stupid. I don't.
- beat 13y agoWell, yeah. But snark aside, I did a little research on the startup shamed in the article, and their business model actually looks viable to me. They have a couple of serious efficiency advantages over the existing models (no restaurant + limited menu + software managed delivery). I don't think an $8 delivered meal is out of the realm of possibility with their model.
- al2o3cr 13y ago"They must be, because the markets are too large to be subsidized by VC forever." cough Salesforce cough