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Revenue is easy, profit is harder

edge.ceo

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Re: Revenue is easy, profit is harder

#101

Post by threeseed »

fxtentacle wrote: post #91
maCDzP wrote: post #52

So I am a Silicon Valley outsider. I live in the northern EU and work with project management in the construction industry representing the owner. It’s mostly infrastructure, roads, water. Old industry, conservative, we basically hate new things. On my spare time I tinker with my computer, learn assembly or whatever. Hence HN. I have recently started a course in corporate finance at my local uni because my new role r…

In some cases, your goal as an investor is not to hold on to the investment until it becomes a viable company and IPOs. Instead, you just try to sell your shares to the next person as quick as possible. If you're in the latter situation, then hype is way more important than actual fundamentals.

This is a rare situation. Most VCs are not interested in a quick exit/entry with a 10x return.

They need the 100x/1000x outliers in order to return their fund and that means holding on to investments until IPO.

Re: Revenue is easy, profit is harder

#102

Post by fatfox »

We’ve created a generation of leadership people who never learned how to make a profit. Until last year, if you were focusing on unit economics, you were laughed out of the room. Fast growth and market share at all cost…

Re: Revenue is easy, profit is harder

#103

Post by exelib »

ghiculescu wrote: post #4

I love payback period, it's a great metric. But it's easy to take it too literally. It's meant to be a tool to help you make prioritization decisions ("what if we do this instead of that"), but people often use it as a management report ("we did this; here's the verdict"). Here's a SaaS example: if it costs you $1000 to acquire a customer that pays you $100/month, the PBP is 10. That doesn't sound amazing. But you ha…

Great example! I think your example exactly points out why PBP of 0 is soo awesome in this case! You can invest $1000 immediately and get another customer in 0 months instead of 10. If they pay upfront again, so you can invest it again and so on.

Re: Revenue is easy, profit is harder

#104

Post by hgomersall »

ecpottinger wrote: post #8
ghiculescu wrote: post #4

I love payback period, it's a great metric. But it's easy to take it too literally. It's meant to be a tool to help you make prioritization decisions ("what if we do this instead of that"), but people often use it as a management report ("we did this; here's the verdict"). Here's a SaaS example: if it costs you $1000 to acquire a customer that pays you $100/month, the PBP is 10. That doesn't sound amazing. But you ha…

My dad had great ideas for businesses. Yet each one he started failed for him. Why, because he has such unrealistic view on how long the payback period will be. He even founded with a partner what is now a national company, but at the time it did not make a big profit in the first year, so he sold his share of the business. He had "Get rich Quick" fever, and never saw that bussiness rarely become an overnight success…

So far, my experience has been that business as a start-up is basically about surviving long enough to make a profit. Of course, some ideas are just bad, but I'm convinced loads of start-ups that failed could have been made to work given sufficient time. This doesn't work so well if you take a pile of capital, but if you go for organic growth it is more plausible to survive hand to mouth for a while.

Re: Revenue is easy, profit is harder

#105

Post by danenania »

maCDzP wrote: post #52

So I am a Silicon Valley outsider. I live in the northern EU and work with project management in the construction industry representing the owner. It’s mostly infrastructure, roads, water. Old industry, conservative, we basically hate new things. On my spare time I tinker with my computer, learn assembly or whatever. Hence HN. I have recently started a course in corporate finance at my local uni because my new role r…

You say it’s difficult, but you yourself will learn the key principles from a single course.

Learning to create a successful product is much harder and requires a much rarer set of skills. There’s no course you can take that will give you this ability. Knowing lots of details about accounting and business administration won’t help you unless you can make something that sells.

Re: Revenue is easy, profit is harder

#106

Post by bdw5204 »

dopeboy wrote: post #92
lchengify wrote: post #80

Earlier quoted context omitted.

When investing in different industries (construction vs tech), it's often useful to think about them in the context of asset classes. Specifically, construction is more tied to either real estate, hospitality or government contracts. These often raise money via a bond (debt) offering or an equity with a very well-worn finance model. These projects require a lot of upfront capital (billions not unusual for roads) and…

This is a helpful reply. Any further literature (blogs or books) that you'd recommend to learn about these concepts?

One of the classics that explains the why behind VC backed tech companies is Peter Thiel's book Zero to One.

A big takeaway for me from reading that book was that the companies that become extremely profitable are basically monopolies with no or few competitors that focus on scaling up rapidly. That was counterintuitive for me because I would have thought you'd ideally want to be profitable at all times. I'd also assumed that competing against incumbents that have little or no competition was the best way to get a profitable business running. That's actually a bad idea unless you're at least 10x better than the incumbent which you probably won't be.

Re: Revenue is easy, profit is harder

#107

Post by photochemsyn »

whitemary wrote: post #27
photochemsyn wrote: post #25

Remaining profitable is likely even harder, as other people will rush in and start providing similar products or services at competitive prices. In a heavily financialized system, the common solution is monopolization (buying up startup competition using pools of capital) - leading to situations like TicketMaster, which gets away with providing low quality-of-service to artists and their fans because they have no alt…

Regulated markets in a capital-centric economy serve, in aggregate, the interests of those who control capital, and therefore also drift toward monopoly. Liberals either don't understand this or are simply being deceptive by promoting the continuation of capitalism.

Even highly socialist countries like Cuba found that introducing regulated markets was healthy for their economies. Now if 'those who control capital' are themselves a small minority of the overall population who act in concert - well, that's a financial monopoly, and of course there are ways to break up a financial monopoly of this nature, such as re-introducing Glass-Steagall provisions that separated commercial and investment banking, eliminating offshore and similar capital tax shelters, etc.

Note that if it is a state body that controls all the capital and hence controls economic decisions like infrastructure development, this isn't so different in practice from having a small group of financiers controlling all the capital - in both cases you have a centrally-planned economy controlled by a small cabal that puts their own interests ahead of everyone else's.

Re: Revenue is easy, profit is harder

#108

Post by whiplash451 »

codegeek wrote: post #23

I would nitpick the title a bit. Revenue is never easy. I think they should rephrase as "Revenue is relatively easier than profit especially if you have PMF". Once you hit PMF (which is where most startups fail), you can just pour money into growth and that's when revenue generation becomes relatively easier.

Can you elaborate on why most startups fail when they hit PMF?

Re: Revenue is easy, profit is harder

#109

Post by throwaway292939 »

ghiculescu wrote: post #4

I love payback period, it's a great metric. But it's easy to take it too literally. It's meant to be a tool to help you make prioritization decisions ("what if we do this instead of that"), but people often use it as a management report ("we did this; here's the verdict"). Here's a SaaS example: if it costs you $1000 to acquire a customer that pays you $100/month, the PBP is 10. That doesn't sound amazing. But you ha…

> If you give the customer a 20% discount to pay annually, they're now paying you ~$1000 upfront, for a PBP of 0

This sounds like a huge assumption being made here - as in, this is not as easy as it sounds.

Re: Revenue is easy, profit is harder

#110

Post by ghiculescu »

throwaway292939 wrote: post #109
ghiculescu wrote: post #4

I love payback period, it's a great metric. But it's easy to take it too literally. It's meant to be a tool to help you make prioritization decisions ("what if we do this instead of that"), but people often use it as a management report ("we did this; here's the verdict"). Here's a SaaS example: if it costs you $1000 to acquire a customer that pays you $100/month, the PBP is 10. That doesn't sound amazing. But you ha…

> If you give the customer a 20% discount to pay annually, they're now paying you ~$1000 upfront, for a PBP of 0 This sounds like a huge assumption being made here - as in, this is not as easy as it sounds.

What’s the assumption?

We do this all the time so if I’m missing something I’m keen to hear it :)

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