31–40 of 51 posts
Not exactly the same but this reminds me of Joel's Strategy Letter I [0] regarding knowing what kind of business you operate, and consequently how you should grow it. [0] https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-...
He references Amazon as a land grab play - sure - but it was also a cash generation machine - I don't think Amazon raised a huge amount of capital - didn't it mostly funded growth via revenue?
You can also have fast equity and slow cash. This is kind of oversimplifying business accounting. Learning some basic accounting may quite literally pay dividends for any project.
Any suggestions for good basic accounting learning resources?
Earlier quoted context omitted.
That is a much smaller problem, most people in IT have it.
Citation needed. From my experience, being able to go two years without income is an extreme edge case.
There's a hidden glimmer of wisdom in here, which is to let your (cash) customers contribute to funding your (equity) business growth. My theory is a niche consulting firm can perform services to make enough money to build out a product, and better yet, they're being paid to learn about user requirements along the way. I'm on a similar journey right now, and it's always difficult balancing the dopamine and temptation…
Yes, but it takes strong leadership. Service and Product companies have important structural differences in many areas, including finance, culture, technology infrastructure, and project management. I’ve seen many companies start on one side, try to add the other, and fail hard.
I also believe resource constraints create innovation, which these companies are particularly poised to do.
The usual value of equity is the cash it can generate. This is a wordy way of saying: 1) that some businesses will be profitable short term, and some in the long term and it can be worth sacrificing one for the other as you end up with a more valuable business, and, 2) sometimes you sell a business for a lot more than its value as a standalone business, for various reasons - for example it lets a big business fill in…
that's a good point about the strategic value exceeding the standalone business value... i think a lot of acquisitions are driven by that, especially in tech. it's interesting how much "potential" gets priced in, even if it's not immediately obvious how that potential will be realized.
In general (not tech in particular) it turns out to be false more often than it turns out to be true. Large acquisitions tend to lose shareholders money but benefit management (because they profit more from running a bigger business).
The more apt framing of this article would be something along the lines, of "The Agency Trap." The author grew his marketing agency to $1M quickly. That might sound great for HNers here, but there are reasons why such businesses don't attract handsome valuations. You always have to keep grinding to keep the inflow of customers, you're never free, and growth is directly tied to the number of employees. Additionally, s…
If you run an "agency" business then you should always be promoting junior employees to full partner. They start our doing work that you find for them, but after a few years of training from you they are now bringing in their own work and should be treated like an independent business owner in your space that you agree not to compete with (which would be against monopoly laws if you were not the same company) and onc…
It’s a good start for junior people to get experience but they tend not to stay long.
It also attracts people who can do it all - design, programming, animation, etc who become stars, and then wonder why they aren’t working for themselves.
Generalists like that also tend to navigate poor management well (also very common) because they remove the need to be managed.
The agencies I was at came to the opposite conclusion - why do we even have employees instead of contractors? Which never really worked out.
Seems aggressive to look at a 5-6 person agency pulling in $1M a year and give the advice “now it’s time to start your _real_ business”
Equity business is thoroughly inaccessible to the vast majority of people, especially the IT people. It requires being an insider at least to a degree, and it requires apart from knowledge and skills, at least some luck. I've seen a lot of extremely bright, talented and hardworking people trying to play that game - all failed, some ruined their entire lives simply for refusing to give up for too long. While those who…
I don't understand why people are so opposed to starting a bootstrapped consulting company. You can start as a single man shop and then hire people and expand. I'm running a consultancy in a LCOL area. Last year we made 400k revenue, 150k profit and 40% growth. We already have verbal agreements for around 400k worth of sales for this year. We have the employees for 600k revenue and if we manage to bring in more sales…
Taking a long time to get to "break even" is not inherently a smart or long-term business play. It could just ruin you. In business, cash is oxygen.
Some businesses (especially platforms and marketplaces like Kit) simply take longer, because it takes time to build brand awareness, develop network effects, and basically hit critical mass.
However, the upside of a platform is that the growth is naturally exponential—the more people on the platform, the more valuable it is to its users.
Because this is so time-consuming and difficult, a platform business commands a premium over a more straightforward SaaS product.
One path isn't inherently better than another path—there are just tradeoffs. And hopefully you go into it with eyes open and make those tradeoffs deliberately.
Earlier quoted context omitted.
If you run an "agency" business then you should always be promoting junior employees to full partner. They start our doing work that you find for them, but after a few years of training from you they are now bringing in their own work and should be treated like an independent business owner in your space that you agree not to compete with (which would be against monopoly laws if you were not the same company) and onc…
This is an interesting idea. I started in agencies and this is indeed a problem. It’s a good start for junior people to get experience but they tend not to stay long. It also attracts people who can do it all - design, programming, animation, etc who become stars, and then wonder why they aren’t working for themselves. Generalists like that also tend to navigate poor management well (also very common) because they re…
This is why you promote to full partner all the time. The people who wonder why they aren't working for themselves should answer "I will have all the advantages of working for myself, plus the advantages of partners for the few places that matter". If you don't promote to partner you lose all the effort you put into training that person if you did you get someone who can help you once in a while.