41–50 of 52 posts
But I understand your confusion. VCs are always knocking at our door and we still haven't answered the question, "What the hell would we do with 2 million dollars?" This is precisely why we haven't taken it.
Well, we've answered it, but it involves the words "hookers" and "blow".
Because VCs don't invest anything less than a crapload of money?
A comic strip illustrates the point: http://www.thevc.com/strips/strip38.html
"C'mon folks, we need major cash outlays. [...] Work with me here, we're talking BILLION with a B..."
I think this could also be called an instance of perverse incentive. VC's have perverse incentive to invest more money than given startups need. http://en.wikipedia.org/wiki/Perverse_incentive
Earlier quoted context omitted.
The point is that MR and MC are not fixed . MR tends to go up with number of users (network effects), MC tends to go down (economies of scale).
MR doesn't go up with number of users. "Marginal Revenue" by definition is the difference in revenue from selling one extra unit. In many cases it would be the price of the product being sold, and is fixed. Economies of scale works on average cost, more specifically long run average cost, while it contributes to the MC going down, MC is more affected by fixed vs variable costs in the short term and more importantly i…
Earlier quoted context omitted.
MR doesn't go up with number of users. "Marginal Revenue" by definition is the difference in revenue from selling one extra unit. In many cases it would be the price of the product being sold, and is fixed. Economies of scale works on average cost, more specifically long run average cost, while it contributes to the MC going down, MC is more affected by fixed vs variable costs in the short term and more importantly i…
For most web startups, MR is not fixed, and it does increase with the number of users. This is mostly due to the price of advertising not being fixed. The value to advertisers increases for every additional user.
Earlier quoted context omitted.
MR doesn't go up with number of users. "Marginal Revenue" by definition is the difference in revenue from selling one extra unit. In many cases it would be the price of the product being sold, and is fixed. Economies of scale works on average cost, more specifically long run average cost, while it contributes to the MC going down, MC is more affected by fixed vs variable costs in the short term and more importantly i…
For most web startups, MR is not fixed, and it does increase with the number of users. This is mostly due to the price of advertising not being fixed. The value to advertisers increases for every additional user.
As for marginal revenue of the startup:
- Fixed rate = MR falls with increasing users.
- CPM = MR falls as the more the pageviews you get, the better a price advertisers will demand from you.
- Per click = MR remains relatively stationary but as with CPM, at some point demand and supply kicks in and when you supply more clicks than advertisers want (for a certain price), they will pay less /per click/.
To get increasing MR in advertising would require changing the rate of 'more likely to buy' users relative to users in general. On the internet it's the other way around, more users == less likely to buy, and with things like Adblock becoming more and more mainstream, it hinders it even more.
If however you just want to make money, profit, things like that, you don't need to spend much money for a web based startup at all.
There is also the issue of leverage. If you need $500k, you don't raise $500k, because when you run out and start looking for more money, your negotiating position is very poor. Instead you raise $2M, then start to talk to investors again when you have spent half of it.
In my experience marketing is not a significant portion of expenses for a startup.