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The rise of the “successful” unsustainable company

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Re: The rise of the “successful” unsustainable company

#91

Post by pron »

jonnathanson wrote: post #89
pron wrote: post #79

Earlier quoted context omitted.

Well, I don't know. Suppose all those engineers were working for a company like IBM or Google, doing research. Much of their work would go to waste, too, as most research does not turn into successful products. I think this is an interesting cultural change rather than a loss. Engineers are willing to sacrifice job security for a small chance for a big payoff. The winner-takes-all approach has long been part of the A…

I don't think there's anything wrong, per se, with engineers wanting to gamble on bigger, riskier projects. Nor do I necessarily see the "productive vs. hypey" dichotomy as a strict dichotomy between startups and the IBMs and Googles of the world. But I do think that there's a major opportunity cost incurred when dollars and talent get shuttled into hypey, bullshit-driven companies instead of legitimate ones. Includi…

Yeah, well, every investor would rather invest in a "legitimate" startup, and every engineer would rather work for one. But telling which is which is the tricky part, isn't it? Some things are only obvious in retrospect.

Re: The rise of the “successful” unsustainable company

#92

Post by jonnathanson »

pron wrote: post #91
jonnathanson wrote: post #89

Earlier quoted context omitted.

I don't think there's anything wrong, per se, with engineers wanting to gamble on bigger, riskier projects. Nor do I necessarily see the "productive vs. hypey" dichotomy as a strict dichotomy between startups and the IBMs and Googles of the world. But I do think that there's a major opportunity cost incurred when dollars and talent get shuttled into hypey, bullshit-driven companies instead of legitimate ones. Includi…

Yeah, well, every investor would rather invest in a "legitimate" startup, and every engineer would rather work for one. But telling which is which is the tricky part, isn't it? Some things are only obvious in retrospect.

While true, that's beside the point at hand. The author is suggesting that the VC system is consciously selecting for the Colors of the world -- or, at the very least, that it has created conditions conducive to the next Color.

In other words: it's not simply betting at the track and ending up with the wrong horse. It's actively betting on what it knows to be the wrong horse, because the wrong horse pays off in the short term.

Re: The rise of the “successful” unsustainable company

#93

Post by pg »

tptacek wrote: post #76
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.

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.

Re: The rise of the “successful” unsustainable company

#94

Post by pron »

bduerst wrote: post #23
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.

I doubt it's fraud-level, but it is cashing in on the hype-machine in the silicon valley. If there wasn't a market for this, then we wouldn't be reading this article. VCs do due diligence - success for them isn't just funding a real business, but more along the lines of cashing out at the right moment.

One thing to realize is that the "hype-machine" is a cornerstone of modern, capitalist, economy. So much in the economy is built around expectations, so I wouldn't single out silicon valley. Silicon valley, since it occupies the innovation/novelty niche, is just a exaggerated, caricaturized, even (not necessarily in a bad way), microcosm for the entire capitalist economy.

Re: The rise of the “successful” unsustainable company

#95

Post by tptacek »

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.

CA didn't start out as a deliberate scam, and continues to run today despite being essentially a scam for many years. The companies we're talking about today --- Groupon, Zynga --- don't have long enough track records as publicly traded entities for us to presume they're run in good faith; variants of the things that got Kumar sentenced probably aren't even crimes when they happen during mezzanine funding, when the people being "scammed" are sophisticated investors.

You implied, Zynga isn't a pump-and-dump scheme because Mark Pincus still runs it, and nobody would inflict the management of a poorly-performing public company on themselves. Well, that's just not true.

There are better arguments against the assertion that Groupon is a pump-and-dump scheme than "it must suck to be Andrew Mason these days" (it does not suck to be Andrew Mason, by the way). For instance, Groupon was open about its liabilities and the enormous risks it faced, and its whole industry sector was very carefully scrutinized.

I'm done arguing this point. My nerdly brain just couldn't handle the idea that being Andrew Mason in Q4'12 is so painful that simply holding his job imputes him credibility.

Re: The rise of the “successful” unsustainable company

#96

Post by pron »

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.

Sure, but these accusations shouldn't be taken as personal attacks against specific companies, but, rather, as a sense people get of "silicon valley" and the startup economy. It could just be jealosy or schadenfreude (which shouldn't be entirely discounted :)), but I take it as a political statement. Even if the facts in some particular case can be refuted, these statements express a true and valid sentiment about the state of affairs.

Re: The rise of the “successful” unsustainable company

#97

Post by rms »

drumdance wrote: post #78
tatsuke95 wrote: post #72

Earlier quoted context omitted.

> "Mark Pincus and Andrew Mason are both still running these companies." Because, at least in Pincus' case, he can't be removed . It would be pretty hard to argue that he wouldn't have been canned under different circumstances. "Pump and dump" may be a bit much. But I'm glad that it's coming to light that business shadiness doesn't start and stop with the financial industry; it occurs everywhere there are substantial…

Yes, but he can cash in and quit. Why hasn't he? I've never run a public company but I know some who did during the first dot-com crash and it was not pleasant.

Because that signal might destroy the company?

Re: The rise of the “successful” unsustainable company

#98

Post by 9999 »

corford wrote: post #88
staunch wrote: post #75

Earlier quoted context omitted.

Don't you see how that defies the notion that it was a pump and dump? Why would they (with tens of millions of dollars) stick around? No one can force them to stay. They're already obscenely rich. Think about what their motivations must be.

These guys obviously aren't the sort of people that are happy to lie by the beach reading a book, quietly enjoying their millions. They're alpha dogs in the absolute worst sense of the word. They thrive off ego, winning, power, greed, narcissism and all those other lovely traits most people pulling similar moves seem to have. Think Gordon Geko. Remove the pin stripe suit, fast forward 30 years and change the modus op…

That thing that you said there does not describe Andrew Mason in any way shape or form. He used to post on a forum that I spent a lot of time on in the early 00s. He's a clever, funny guy, and he took most of his lessons in ethics from Steve Albini. Before Groupon, he created The Point which was a group funding site for social initiatives that in many ways resembled Kickstarter.

Re: The rise of the “successful” unsustainable company

#99

Post by [deleted] »

corford wrote: post #88
staunch wrote: post #75

Earlier quoted context omitted.

Don't you see how that defies the notion that it was a pump and dump? Why would they (with tens of millions of dollars) stick around? No one can force them to stay. They're already obscenely rich. Think about what their motivations must be.

These guys obviously aren't the sort of people that are happy to lie by the beach reading a book, quietly enjoying their millions. They're alpha dogs in the absolute worst sense of the word. They thrive off ego, winning, power, greed, narcissism and all those other lovely traits most people pulling similar moves seem to have. Think Gordon Geko. Remove the pin stripe suit, fast forward 30 years and change the modus op…

[deleted]

Re: The rise of the “successful” unsustainable company

#100

Post by wtvanhest »

nkohari wrote: post #86
wtvanhest wrote: post #61

Earlier quoted context omitted.

I took both the poster I replied to and the poster above his under consideration when I replied. Finance doesn't require all companies be sustainable, only that some companies grow enough to offset losses taken on unsustainable companies. It is a general principal of how investments work.

In my understanding, the person I was replying to was saying that the actual value of equity isn't relevant, because capital cycles through the economy. I was saying that was absolutely not true, because the only reasons anyone would buy equity is to either 1) because they expect the equity to appreciate in value, or 2) to receive dividends or profit-sharing of some kind. The situation you described is a reasonable d…

I believe the OP is referring to the industry life cycle. http://www.investopedia.com/exam-guide/cfa-level-1/equity-in...

If the OP is referring to that cycle, his question seems valid to me. Investors choose companies at various stages because they believe they will “exit” (not just VCs, all investors) at a higher level than today. When a company gets to the end of an industry life cycle, their price/earnings multiple is compressed and “value” investors step in thinking their new strategy will let them enter a new market etc.

Every investor is taking risk and whether the timelines are short 2 to 3 years or long 3 to 10 years before the investor expects the company to go in to decline, every professional investor understands that someday the vast majority of the businesses they invested in will fail. (I’m talking about every type of investor, even stable growth mutual funds). Even if that means it takes 20 years to fail.

I understand my point is highly nuanced and somewhat theoretical, but it is grounded in finance literature and the OP’s question seemed more valid than deserving the response, “that’s not how finance works”. I guess I was hoping someone smarter than I would come along and propose some new framework or possibly add some insight so I rebutted your post.

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