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Revenue is easy, profit is harder

edge.ceo

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Re: Revenue is easy, profit is harder

#161

Post by friendzis »

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?

This assumes that working capital management is magic and is not part of making business. If it was not the case, cloud hosting like AWS would have failed before even starting. And yet here we are, spending more per unit to free working capital.

Re: Revenue is easy, profit is harder

#162

Post by hnfong »

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…

As you may have realized, basic corporate finance is not that hard. It's totally doable for tech founders to learn by doing -- and savvy investors presumably give them sound advice and make sure they're on the right track. They'll also usually get somebody with business/finance experience to join if/once the product gains traction. The value founders provide is usually bearing the risk and effort in developing the "new product", while anyone with a MBA can deal with the business/finance side of things if needed, so the latter might be viewed more as a commodity.

But then, as we've seen in the FTX fiasco, some investors really just throw money around without any due diligence.

Re: Revenue is easy, profit is harder

#163

Post by grogenaut »

wpietri wrote: post #21
grogenaut wrote: post #18

Earlier quoted context omitted.

Amazon typically isn't spending the lion share on user acquisition, it's plowing it into expansion and infra. Most recent issues/losses were due to a massive investment in physical fulfillment centers due to pandemic demand.

I agree with what you say, but your tone to me sounds contradictory, so I'm puzzled. Amazon "plowing it into expansion and infra" sounds exactly like "they prioritized growth", doesn't it?

tone more came from typing on a phone... but the parent, I read, a saying companies that are not turning a profit are mismanaging their money, which I was contradicting.

I randomly had lunch sitting next to a dude, while I was waiting for a movie to start, I was 24, maybe 1 year out of college. The service was slow because a waiter just had to leave. We both had been to the place and weren't concerned about the time. Started talking to him, we he was retiring. I was just starting. Dude was selling his company for $195M in 2001. Turns out he did compressed air/etc, and competed with praxair, who he was selling to. I asked him what his strategy was. "I invest in Me, not the market, it's the only thing I understand or trust". He kept expanding his business when he could, got tons of certs and trainings to do everything in the industry he could. He started from it from quitting as a sales guy for another company he disagreed with.

Anecdata yes, but You can't really grow a business without investing in that business and that means taking some profits and putting them back into the business.

Re: Revenue is easy, profit is harder

#164

Post by AlbertCory »

hinkley wrote: post #152
AlbertCory wrote: post #144

Earlier quoted context omitted.

Thanks. Subscriptions always seemed to me like they were for the business' benefit, not for mine. I'm sure it does make the growth models look really good; you've got this nice, regular stream of money coming in. However, it does nothing for the customer. I refuse to subscribe to anything, as a rule. Deliver some value, and I'll pay for it when I need it. YMMV.

I believe it makes business loans easier to get. Have you never spent money at a company precisely because you hope it’ll stick around? Companies you only really need every three years have a hard time sticking around, and you may find that when you need them most they’re having a going out of business sale. Patronage. Patronage is more than a purely transactional relationship with a company.

OK, can't argue with that. What's a company you subscribe to, purely to help them survive?

Clearly Microsoft and Adobe don't need your help.

Re: Revenue is easy, profit is harder

#165

Post by wpietri »

coffeebeqn wrote: post #42
wpietri wrote: post #15

Earlier quoted context omitted.

One of the interesting questions for me is how long this adaptation will take. I think there are a bunch of things that could make it pretty laggy. E.g., the fact that so many execs have spent so many years in an unsustainable capital environment. Or the amount of VC money still sloshing around waiting to be applied. Or the number of VCs who basically built their careers on these kinds of unsustainable businesses. Ho…

Also many companies are probably just praying that one set of layoffs and improving inflation will get them to the next era of easy funding sometime in 2024

It's a certainty. 20 years ago there was a bumper sticker: "Please god, just one more bubble".

[1] https://www.bloomberg.com/news/articles/2004-08-15/commentar...

Re: Revenue is easy, profit is harder

#166

Post by ivalm »

scarface74 wrote: post #154
ivalm wrote: post #112

Earlier quoted context omitted.

Skype, Spotify. But both grew with SV venture. EU venture is not as good for early companies because they are much more conservative.

And Spotify is a piss poor business, has never been profitable and its costs scale directly with its revenue. It’s contractually obligated to give its suppliers 70% of its revenue and its major competitors consider its whole reason for being just a tiny feature. Streaming music is a “feature not a product”

A feature that IPOed and is currently with a market cap of $24B. Please let me know where I can invest in more of such features, because the ROI is huge.

Re: Revenue is easy, profit is harder

#167

Post by scarface74 »

ivalm wrote: post #166
scarface74 wrote: post #154

Earlier quoted context omitted.

And Spotify is a piss poor business, has never been profitable and its costs scale directly with its revenue. It’s contractually obligated to give its suppliers 70% of its revenue and its major competitors consider its whole reason for being just a tiny feature. Streaming music is a “feature not a product”

A feature that IPOed and is currently with a market cap of $24B. Please let me know where I can invest in more of such features, because the ROI is huge.

So now the idea of a successful company is “what it IPOd for” not “whether it makes a profit”?

Spotify had a market cap of $26 billion at IPO. It’s now worth $24.2 billion. If you had bought the stock at IPO and held onto it your ROI would have been negative. The VCs and investment bankers would have counted you as one of “the greater fools” (https://www.investopedia.com/terms/g/greaterfooltheory.asp).

By comparison, the S&P 500 is up 50% since Spotify’s IPO

Re: Revenue is easy, profit is harder

#168

Post by ivalm »

scarface74 wrote: post #167
ivalm wrote: post #166

Earlier quoted context omitted.

A feature that IPOed and is currently with a market cap of $24B. Please let me know where I can invest in more of such features, because the ROI is huge.

So now the idea of a successful company is “what it IPOd for” not “whether it makes a profit”? Spotify had a market cap of $26 billion at IPO. It’s now worth $24.2 billion. If you had bought the stock at IPO and held onto it your ROI would have been negative. The VCs and investment bankers would have counted you as one of “the greater fools” ( https://www.investopedia.com/terms/g/greaterfooltheory.asp ). By compariso…

This is a discussion on VC investment strategy. So the question is more like: if you invested in Spotify series A or B and exited at IPO did you have a good RoI? The answer is yes, you had an extremely good ROI.

Re: Revenue is easy, profit is harder

#169

Post by scarface74 »

ivalm wrote: post #168
scarface74 wrote: post #167

Earlier quoted context omitted.

So now the idea of a successful company is “what it IPOd for” not “whether it makes a profit”? Spotify had a market cap of $26 billion at IPO. It’s now worth $24.2 billion. If you had bought the stock at IPO and held onto it your ROI would have been negative. The VCs and investment bankers would have counted you as one of “the greater fools” ( https://www.investopedia.com/terms/g/greaterfooltheory.asp ). By compariso…

This is a discussion on VC investment strategy. So the question is more like: if you invested in Spotify series A or B and exited at IPO did you have a good RoI? The answer is yes, you had an extremely good ROI.

This article is about just the opposite.

> My bootstrapped mobile gaming company achieved success…

He was specifically talking about a company not getting VC funding and “growing profitably”. In the last decade or so, I can’t think of one tech company that was profitable before it IPOd.

Re: Revenue is easy, profit is harder

#170

Post by JohnFen »

whitemary wrote: post #157
JohnFen wrote: post #74

Earlier quoted context omitted.

It's a great tool to teach about the evils of monopolies, but a terrible game.

It teaches how capitalism obviates monopolies.

Capitalism without appropriate regulation always degenerates into monopoly.
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