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The rise of the “successful” unsustainable company

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Re: The rise of the “successful” unsustainable company

#121

Post by michaelochurch »

The takeaway from this is that VC-istan has turned into a celebrity economy.

The most relevant trait of a celebrity economy is the importance of visibility (and the vicious politics surrounding who gets to be visible). If everyone (most relevantly, the investor community) knows you're a 5.5, that's better than being a 10 that no one has ever heard of.

This has been my observation. I've met plenty of very successful founders (people that the HN crowd would have heard of) who are just not very impressive.

It also gets under my skin when VCs say, "we don't invest in ideas, we invest in people". To which I say, "then most of you should be fired, because you suck at that." Honestly, VCs are a lot better at picking ideas. Sure, a lot of these "social" apps are lame, but VCs actually do an excellent job of choosing what ideas to fund, given the constraints they face and their objective function (variance-agnostic expectancy maximization, 1-10 year payoffs). That they do well. On the other hand, they seem to be doing a lousy job of picking people (and at that, I would do a better job than 90+ percent of them).

Re: The rise of the “successful” unsustainable company

#123

Post by jacques_chester »

GFischer wrote: post #122
jacques_chester wrote: post #105

My experience with WPEngine was terrible.

Could you elaborate? / Have you already elaborated on a blog post? :)

I started writing a full reply above, then turned it into a blog post.

I linked to a completely different blog post in a comment on another story, but someone noticed my blog post and submitted it:

http://news.ycombinator.com/item?id=4692456

Anyhow. It turns out that I'm not alone.

Re: The rise of the “successful” unsustainable company

#124

Post by khafra »

staunch wrote: post #117
sirclueless wrote: post #115

Earlier quoted context omitted.

The only thing their continued presence at their respective companies tells us is that they think they can do better by staying than leaving. Mark Pincus might be staying at Zynga because he thinks he can turn around the stock price and make it a sustainable company, or he might be staying because he thinks there is plenty of profit to squeeze out of the company as it dies. There are reasons to stick around besides g…

He's got $200M and no one can take his massive equity away. I just think you have to be very cynical to think his primary motivation is money, at this point.

I think you have to be pretty silly to think that people, in general, stop being motivated by money once they get a lot of money. The only two high net worth individuals I can think of who obviously stopped being motivated by money are Warren Buffett and Bill Gates.

Re: The rise of the “successful” unsustainable company

#125

Post by GFischer »

jacques_chester wrote: post #123
GFischer wrote: post #122

Earlier quoted context omitted.

Could you elaborate? / Have you already elaborated on a blog post? :)

I started writing a full reply above, then turned it into a blog post. I linked to a completely different blog post in a comment on another story, but someone noticed my blog post and submitted it: http://news.ycombinator.com/item?id=4692456 Anyhow. It turns out that I'm not alone.

Thanks, just saw it as the top story on HN, so I guess you're right.

Re: The rise of the “successful” unsustainable company

#126

Post by patmcguire »

webwright wrote: post #77
enraged_camel wrote: post #34

Earlier quoted context omitted.

>>It was the first big success in its space Success that is not sustainable is not success. >>and a lot if its downfall comes from how easy it is to copycat it. No, I don't think so. The real (and perhaps the only) reason Groupon is not sustainable is because the fundamental assumption that the business model rests on turned out to be false. Let me explain. The original idea was that Groupon would team up with a busi…

"Because of this, most Groupon clients (the businesses) end up losing money, and never offer a second or third discount via GroupOn." That's false. in Q3/2011, 33% of Groupons merchants were people who were doing it for a second time. That number was up to 56% in Q1 of this year. The deals are getting less lopsided-- $12 for $24 at a restaurant where it's challenging to eat for anything less than $50 is a pretty good…

I don't think you're correct about the cash advance - as I recall the merchant only gets paid when the coupon is redeemed. Groupon keeps the float and the breakage.

Re: The rise of the “successful” unsustainable company

#127

Post by knieveltech »

majani wrote: post #68
pg wrote: post #63

Earlier quoted context omitted.

Calling Zynga and Groupon pump-and-dump schemes is a mark of one's one's understanding of business in much the same way that believing vaccines cause autism is a mark of one's understanding of science. Mark Pincus and Andrew Mason are both still running these companies. Running a public company that's doing badly is extraordinarily painful. No one would bring that on himself.

That's a rather off-colour reply, it has to be said, sir. First you resort to an absurd comparison in a poor attempt at snark, then you claim that Mark Pincus and Andrew Mason are severely pained by their lacklustre performance on the public markets, without providing any evidence of that. This deserves downvotes in my opinion.

Definitely not up to PG's typical standards for a reply.

Re: The rise of the “successful” unsustainable company

#128

Post by patmcguire »

grey-area wrote: post #22
nicholassmith wrote: post #13

Unfortunately it seems like a lot of the time people are building companies for exits, rather than long term products. There's exceptions of course, but how much of that is now the expectation that to get the funding to do something you've got to be aiming for $xm dollars at exit. I've got no problems with people exiting like that, but it makes me wonder where all the pressure to sell up and move on comes from.

I've got no problems with people exiting like that, but it makes me wonder where all the pressure to sell up and move on comes from. The pressure often comes from the VCs who put a lot of money down in an initial investment, and need at least some of their bets to pay off within a short time-frame. Are there any long-term VC funds which accept stock and then wait for dividends?

It's generally too easy to game dividends - you can do lots of Hollywood accounting to make money without ever "making money."

Companies also aren't obligated to pay a dividend even if they're profitable - see Apple up until about a year ago.

Re: The rise of the “successful” unsustainable company

#129

Post by brazzy »

nkohari wrote: post #49
hammock wrote: post #35

Why does this idea exist that every company needs to be sustainable? Is it not the natural way of markets that 1) an opportunity is identified, 2) exploited for profit, until 3) competition drives profitability away? So long as capital stays productive, from a societal point of view it shouldn't matter whether it stays in one company for 20 years or moves from company to company every three.

Finance doesn't work that way at all, though. Capital is invested because of the potential of growth, and therefore return. You wouldn't buy stock in a company at $10 if you expected it to be worth $10 for the entire time you held the shares. It's not like the people who bought ZNGA stock at $10 were somehow rewarded with $7 worth of stock in some other company when their shares dipped to $3.

> You wouldn't buy stock in a company at $10 if you expected it to be worth $10 for the entire time you held the shares.

Yes, you very much would, if you had reason to expect that company to be willing and able to regularly pay out dividends - model for returns that does not depend on growth and is thus sustainable (nothing grows forever).

Re: The rise of the “successful” unsustainable company

#130

Post by api »

pg wrote: post #93
tptacek wrote: post #76

Earlier quoted context omitted.

I am with you on how misplaced the enmity towards --- well, at least Groupon. But there have been well-known public companies that did badly that were essentially scams, such as during the channel stuffing scandals of the late 1990's. So while I sympathize with your irritation at the "Groupon is a Ponzi scheme" meme, the last sentence of your comment is simply wrong; it's wrong directly (a counterexample would be San…

If anything that supposed counterexample supports my point that the accusations these people casually make in HN comment threads are so much more drastic than they realize that they're their own reductio ad absurdum. Running a public company that's a scam tends to entail criminal behavior. Especially nowadays.

I wasn't suggesting that it was conscious con-artistry (though I don't completely rule it out either).

I worked in business consulting for a bit. Part of what I learned is that at least some emperors have no clothes. There were really two main types I encountered:

(1) Extremely competent, hard-working executives who try their best to build real value.

(2) Fast talking dominance machines. Sociopaths, really. They make big promises, send a lot of primate dominance gestures, and generally build vapid unsustainable businesses that eventually fail. Yet the failure never sticks to them, and it often never sticks to their initial investors. Usually it's handed off to someone down the line (later investors, the public, employees, etc.).

When I see a resume that consists of a series of a series of unsustainable businesses where the early investors and executives made out well by handing a bag of flaming poo to later investors, I tend to suspect that we're dealing with category (2) players.

I also suspect that when I hear of extremely magnetic reality-distortion-field personality types. There is a certain kind of charisma that I take as a contrarian indicator.

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