The Profit Motive
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The Profit Motive
1–10 of 23 posts
Re: The Profit Motive
#2This begs the question of "Are businesses based in certain urban areas really more productive or do they just have more access to funding?"
Re: The Profit Motive
#3I don't like to call unprofitable ventures businesses. They might be a business one day. A business creates profit (wealth) by creating value in the eyes of the customer and then charges for it. Profit, if arrived at honestly, is a measure of good returned to society.
Re: The Profit Motive
#4"But the vast majority are burning money like its water and there is plenty more where it came from."
...like kindling? I chuckled at this.
Re: The Profit Motive
#5There is another aspect of this that is critically important. For a business to operate unprofitably, it needs a line of credit. There are scarily complicated second order effects of what that credit does, where it comes from and whether the net effect is good or bad open.
When credit is involved and businesses are not profitable there is a spectrum of results. On one end the credit is being provided by sensible people and eventually some of the businesses return a large profit. On the other the credit is being provided by idiots (government, banks with bad policy, etc) and at some point there will be massive losses when it can't be paid back.
If someone is observing 'gee, nobody is making a profit here', then I'm going to interpret what they are saying as 'we're moving to the wrong end of the spectrum here, there is going to be a clean-out where people lose their jobs or their investments'. But to have the conversation, really we need to know who, why, how much, when and what terms the credit is being provided under.
Re: The Profit Motive
#6>Businesses are ultimately valued as a discounted set of future cash flows
This. Even if this is 101 corporate finance, somehow tech entrepreneurs and founders are totally ignorant how companies are all about and think they can become rich by making their product as popular as possible
Re: The Profit Motive
#7This begs the question of "Are businesses based in certain urban areas really more productive or do they just have more access to funding?"
Obivously the latter: there aren't any physical factors of production that make SF uniquely suited to developing better software, but that's where startups need to be to have the vital random personal contacts to raise huge amounts of money.
Re: The Profit Motive
#8The VC game operates under one critical assumption: winner takes all.
There's no room at current valuations for two taxi firms, internet shops, TV streaming firms,etc. in the long run. The valuations are only justified by the belief that in the future they will be so dominant that they will be able to set prices to higher levels. While there is competition in the market they can never return the profits to investors.
Re: The Profit Motive
#9This begs the question of "Are businesses based in certain urban areas really more productive or do they just have more access to funding?"
Obivously the latter: there aren't any physical factors of production that make SF uniquely suited to developing better software, but that's where startups need to be to have the vital random personal contacts to raise huge amounts of money.
Excuse my pet-peeve rant, but the "random personal contacts" line is characteristically vague. In some sort of reflexive pursuit to avoid admitting irrational factors, explanations become necessarily vague.
For example, the irrational factors could be nepotism (which is certainly the case if being in certain location is vital), social status (it's not as cool to both start and fund/invest in a business in some unknown place), public relations ("It's the new hot tech from SV looking for an IPO in 3 years!") and so on.
But then, like magic, everything is translated into vagueness: "It's because everything happens here!", and to add insult to injury there's some overall idea that the whole thing is meritocratic.
Re: The Profit Motive
#10I don't like to call unprofitable ventures businesses. They might be a business one day. A business creates profit (wealth) by creating value in the eyes of the customer and then charges for it. Profit, if arrived at honestly, is a measure of good returned to society.
You’re describing positive unit economics and any responsible startup has that even if it’s not yet profitable.
> growth has to be responsible (positive unit economics on growth spend)