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Revenue is easy, profit is harder

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Re: Revenue is easy, profit is harder

#131

Post by kjkjadksj »

smeej wrote: post #54
hinata08 wrote: post #14

Almost unrelated, but I also learned what was capital efficiency and payback period after playing Monopoly for the first time in years. Long story short, when the properties were eventually sold out, I burned my cash flow to buy more of them to other players, at a high price, when they needed money (it would also allow them to play longer) My logic was that by owning the most properties and by building houses and hot…

There's one monopoly that matters in Monopoly: the houses themselves. The game only has 32 houses. If you get two 3-property monopolies and build four houses on each one, forgoing hotels, you have 24 houses and everyone else is fighting over the remaining 8. If you get max out houses on two 3-property monopolies and a 2-property one, the game is yours regardless of what anyone else has.

Wow I never knew the houses were finite! That really changes things

Re: Revenue is easy, profit is harder

#132

Post by NegativeK »

hackernewds wrote: post #78
leetrout wrote: post #35

Earlier quoted context omitted.

Yep! And the second / late mover advantage. For any that are unfamiliar: https://insight.kellogg.northwestern.edu/article/the_second_...

Jack Dorsey often says. You don't need to be first to market. You just need to be best to market. Demonstrated through Twitter, and now Cashapp

I'm reminded of the scene in Margin Call[1]: "There are three ways to make a living in this business: be first, be smarter, or cheat."

[1] https://www.youtube.com/watch?v=Hhy7JUinlu0#t=6m22s

Re: Revenue is easy, profit is harder

#133

Post by NegativeK »

ivan_gammel wrote: post #61
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…

Let’s say you distribute X million € to X startups (each one gets 1M) and you know that on average one of them will yield 2X in 5 years and the rest will just burn the money and die. This seems to be a good investment, right? You only need to pick those startups carefully. It appears, the criteria of selection may be quite different from what you would look at if you were to provide those money as a loan. I’m not sur…

x > 2 means you've lost more than your investment in five years. You've going to need a startup to return X million dollars to break even.

> You only need to pick those startups carefully.

This is the "draw the owl" moment. The top comment is saying that they wouldn't pick any startup that didn't have someone to understand basic corporate finance.

Re: Revenue is easy, profit is harder

#134

Post by ckdarby »

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…

Two good friends were running a sketchy Instagram business back in the day.

They had a massive churn issue around 3 months. They knew this was a cash cow that was printing money but someday it'd come to a end abruptly.

I suggested to them to offer 20% to their existing customers to switch to annual. They made ~$60k in a day and knew they'd have to refund if things went south before the annual contract ended. They were able to deploy the capital into marketing and explode.

In the end they had to shutdown but not before each founder had taken home +$250k and invested into legitimate means.

Re: Revenue is easy, profit is harder

#135

Post by ckdarby »

I am an amazing "2nd in command" employee. I struggle taking nothing to something and the dedication required to get market fit to build revenue.

On the other hand I find building profit one of the most enjoyable and fun things! I've now successfully more than 3 times in a row taken ~$100M revenue and grown it via new top/bottom around 10-15%.

I think it takes a different kind of person to optimize for income than just purely growing revenue.

Re: Revenue is easy, profit is harder

#136

Post by chii »

mindwok wrote: post #128
moonchrome wrote: post #124

Earlier quoted context omitted.

> One of my finance professors mentioned that ~70% of business fail in their first two years, and ~90% of those failures are purely due to a lack of working capital, not due to any fundamental flaw in the business plan. Having seen my share of failed businesses - I'm very skeptical of these numbers.

Also skeptical. How would you determine if a business would have succeeded if it had working capital to continue?

If the theoretical unit economics works out, _and_ that the market size allowed for the scale that those unit economics required?

Re: Revenue is easy, profit is harder

#137

Post by coffeebeqn »

rrrrrrrrrrrryan wrote: post #121
somsak2 wrote: post #53

Earlier quoted context omitted.

Microsoft was founded before oracle and is among the top 5 largest tech co's. IBM and oracle may not be as big as they used to but they're still huge. oracle in particular is at a near all time high.

It's funny to see how people on this site so vastly overvalue organic growth and undervalue inorganic growth. (It makes sense given the target audience, obviously.) You can absolutely grow a company by all metrics (revenue, income, market share, market cap) just by having a bunch of MBAs that make well-negotiated acquisitions. It's basically all IBM and Oracle do these days: buy up smaller B2B software, integrate it…

They do seem to have shrewd b2b sales but my point was that at one point people actively wanted to work there and were excited about their new releases. They were the biggest company in the SP500 in 1981-1988

Re: Revenue is easy, profit is harder

#138

Post by nkurz »

kmonsen wrote: post #94
ivan_gammel wrote: post #61

Earlier quoted context omitted.

Let’s say you distribute X million € to X startups (each one gets 1M) and you know that on average one of them will yield 2X in 5 years and the rest will just burn the money and die. This seems to be a good investment, right? You only need to pick those startups carefully. It appears, the criteria of selection may be quite different from what you would look at if you were to provide those money as a loan. I’m not sur…

No the unicorn needs to do a lot better than 2x. I think you need an X and a Y there for it to make sense.

You might be misinterpreting. His nomenclature is misleading, but he doesn't mean "2x", he means "2X", where X is the number of companies. That is, you give 1 million € to 10 companies, and the one winner makes you 20 million € (20 times what you invested).

He's saying you are guaranteed to double your money in 5 years, which for most investments isn't easy. Or maybe you understand this, and mean that a VC firm needs to target even better returns than this to stay cover their costs and stay in business? Possible.

Re: Revenue is easy, profit is harder

#139

Post by hinkley »

AlbertCory wrote: post #127

This is an accounting method that's different from the traditional ones. That's not to say it's wrong. It's just interesting. However, "customer acquisition cost" seems to imply that that customer is now "yours" and he'll keep buying without any more spending from you. That assumption is questionable. Maybe he's just on loan to you, and fickle as all hell. Did Uber "acquire" me just because I used them a few times? T…

> However, "customer acquisition cost" seems to imply that that customer is now "yours"

I’ve confused a few people this ways in conversation lately and I’m not sure what the solution is, but it’s a case of saying, “even the most optimistic scenario is still very bad”.

Keeping someone’s attention is never going to be cheaper than getting it in the first place. The best you can do is spend a maintenance cost to retain them, in which case if enough time passes and enough repeat business happens then the profitability of that customer keeps going up. But you’re going to hit an asymptote that looks like Amdahl’s law, and dictated by those investments.

Re: Revenue is easy, profit is harder

#140

Post by balderdash »

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…

Your observation is not wrong, and it’s part of the reason why so many of these startups lose money. However the element I think you’re overlooking is the distribution of potential returns. If you invest $10m into a a startup, maybe you lose $10m or earn $250m, vs investing $1b into an infrastructure project and maybe making $200m or losing $200m…
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