The rise of the “successful” unsustainable company • Hacker News Board

Re: The rise of the “successful” unsustainable company

#41

Post by thematt » Tue, Oct 23, 2012, 6:41 PM UTC

veb wrote: post #15

ergest wrote: post #6

Finally someone is talking about this! I've always felt that the "new" tech companies bring very little value to consumers and are thus not profitable long term (but of course the early investors and founders already made their money) The incentives of many VCs and "angels" are at opposite ends with sustainability, consumer value and long term success.

What kind of bugs me is why the small start-ups who are actually making money from day one don't really receive much money. I mean, $700,000 (pulled from thin air) in funding is good, don't get me wrong - but if they're making money and they have a decent business plan, why aren't THEY receiving $41,000,000 in funding?

Because if they already have revenue, they have numbers around who and how many people are willing to pay -- there's at least something to go on and they get valued like any other company. Investors start with that and calculate forward how much they'd be willing to pay for future revenue and growth.

The start-ups with no revenue don't have that, so they make guesses about what their market can or will be, which is often over inflated and rarely accurate, but nevertheless is the basis for how much people invest. Investors in this scenario take those numbers and then back into what they think the value should be. Or worse, they compare it to other hyper-inflated companies and arrive at a valuation via group-think.

Re: The rise of the “successful” unsustainable company

#42

Post by taylonr » Tue, Oct 23, 2012, 6:50 PM UTC

wtvanhest wrote: post #5

What I am about to type is not an excuse for some of these companies, but rather an observation about all companies. Sustainability is relative. Very few companies "last forever", so the real questions are... What is an acceptable pattern of growth and what is driving the shorter lives of these companies?

That's a fair point. But I think if you look at most non-startup companies that stay around for 3-4 years they don't typically have the valuations that the startups do in the same time.

For example, Joe's Plumbing shuts down after 2 years because Joe realizes he has to manage his books, do advertising, manage any junior plumbers etc. In the end he spends 50% of his time doing plumbing and 50% of his time doing "business." So he pays off his small business loan (maybe) of $100k and goes to work for Tom's Plumbing where at least he gets to do plumbing all the time.

He had a run of 2 years, but at no point was his company sitting on millions of dollars.

Re: The rise of the “successful” unsustainable company

#43

Post by [deleted] » Tue, Oct 23, 2012, 6:53 PM UTC

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.

[deleted]

Re: The rise of the “successful” unsustainable company

#44

Post by taphangum » Tue, Oct 23, 2012, 6:53 PM UTC

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.

Sustainability is the ideal that (hopefully) we all strive for, because of the many negative effects of unsustainable business in the long term. Such as laying people off.

Good point though.

Re: The rise of the “successful” unsustainable company

#45

Post by pyoung » Tue, Oct 23, 2012, 6:54 PM UTC

Retric wrote: post #31

megablast wrote: post #19

Earlier quoted context omitted.

If you look at it as a form of advertising, it is a great idea. And I am sure there are a number of returning customers.

I suspect the real problem was the size of their discounts. Selling a 40$ bottle of wine wine for 20$ attracts far more people that buy 20$ wine than people who buy 40$ wine. So unless you can afford to keep selling at 20$ the odds of repeat bushiness is low. Really when it comes to coupons there are three options that actually work. You can always have a sale, you can make it a pain to use, or you can limit yourself…

That would have definitely been the much more sustainable approach. Although I have a feeling that offering discounts of 10-15% would not have resulted in the hysteria that they originally generated and thus would have limited traction. It is one of the many ironies of their story.

Re: The rise of the “successful” unsustainable company

#46

Post by patmcguire » Tue, Oct 23, 2012, 6:59 PM UTC

api wrote: post #2

This is diplomatic and charitable. When I see a repeat pattern of GroupOn and Zynga type companies I see someone who knows how to pump and dump. It's not quite fraud but it's getting close, given how loose these sorts of people typically play the truth.

Groupon may never make money, but some company with a similar business model will eventually make a profit. What deal of the day sites offer that no one did before is an immediate and essentially limitless supply of customers.

Even if most companies lose their shirt on that, there are going to be some industries and situations where infinite customers at a temporary loss makes business sense, and once the market for it becomes rational again someone will be able to do it better than they could internally and make a profit on it.

Re: The rise of the “successful” unsustainable company

#47

Post by dochtman » Tue, Oct 23, 2012, 7:00 PM UTC

Also, Facebook.

Re: The rise of the “successful” unsustainable company

#48

Post by adgar2 » Tue, Oct 23, 2012, 7:06 PM UTC

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.

Exactly. Money exists to be extracted from fools at their expense, whether those fools are your investors, employees, customers, or all 3. That's real value in the market at work.

Re: The rise of the “successful” unsustainable company

#49

Post by nkohari » Tue, Oct 23, 2012, 7:10 PM UTC

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.

Re: The rise of the “successful” unsustainable company

#50

Post by 001sky » Tue, Oct 23, 2012, 7:11 PM UTC

This is a great piece. As a business matter, its a "brilliant" arbitrage. Annuity != Perpetuity. If you can buy low (A) and sell High (P) you will do great. And its a lot easier to build an (A) than a (P) type biz. Lack of visibility (due to tech disruption) and short-attention-span (due to tech disruption) combine to make this a potentially evergreen business opportunity, especially for the unethical.