Comment by callmeed | Hacker News Reader

Comment by callmeed | Hacker News Reader

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No it's not (IMO). At least not to the extent where cost control is paramount above growing revenue. Check out this HBR article from 2013: https://hbr.org/2013/04/three-rules-for-making-a-company-tru...

(keep in mind this is a fairly exhaustive study of thousands of companies over 40+ years, not some link-baity blog)

Rule 2: Revenue before cost—that is, prioritize increasing revenue over reducing costs.

Now, there's a slight difference between "controlling expenses" and "reducing costs". But there's also a difference between "controlling expenses" and "making stupid decisions" and I think some of your examples are in the latter camp (as were Fab's).

If you have product-market fit and you can extract value, your focus should be on growing revenue. A couple $100/mo SaaS subscriptions, a corporate retreat, or buying employee lunches aren't going to make or break you. Unfortunately, as Fab confessed (in the article), they never found product-market fit ("we spent $200M and we have not proven our business model").

Playing with millions of other people's dollars™ makes it easy to forget this I suppose.

> they never found product-market fit

I'm not so sure about that. I think they found product-market fit and subsequently decided that they didn't like that market.

As a flash deals site, they were generating substantial revenue. With some operational rigor, this could have been turned into a sustainable and growable business which was worth hundreds of millions of dollars.

Unfortunately, it seems like both the founders and investors weren't satisfied with the market they had found a fit for: they wanted to instead build a product which fit a truly mass market. If they were successful in that, it would have been a billion dollar business, but they weren't.

Lesson learned: once you find product-market fit, be very careful about changing your product to reach a bigger market.

Wouldn't the better play be to spin off the product-market fit business before doing your pivot... especially if the business was a 100+ million one.

> Wouldn't the better play be to spin off the product-market fit business before doing your pivot... especially if the business was a 100+ million one.

Potentially, but that also undermines your ability to use the existing business/user base to seed growth for the new one.

To some extent, but on the other hand... you can integrate logins across a larger brand so you there's no sign-up requirements for your new product, and you can market to your existing customer base in numerous ways as long as you don't overdo it. You just can't change the existing product into something else under their feet.

I can see that. Why limit your revenue by a potential $1m/year because you don't want to spend the extra $50,000/year (for example).

At the same time when you start out saying "I need to pour millions into this idea to make a single dollar back", I start questioning whether it's a viable idea in the first place. Granted, some ideas/problems do require expensive solutions: converting from our current transportation system to driverless cars cannot be done on the cheap. However, if I was an investor, I'd be picking startups running out of someone's basement on a farm in Iowa, rather than someone that wants to use my money to open a lavish office in NYC.

Then again, I'm not an investor, so I have no idea what I'm talking about :)

Yes, if it takes you $5 to make $1, then something is probably wrong. But, if it takes you $1.10 to make $1 and there's a clear path to efficiencies/economies of scale, then maybe you're on to something.

Here are some VC perspectives on burn rates:

http://avc.com/2014/09/burn-baby-burn/

http://www.businessinsider.com/bill-gurley-silicon-valley-is...

"But, if it takes you $1.10 to make $1 and there's a clear path to efficiencies/economies of scale, then maybe you're on to something."

I agree with everything you've said, but the latter part of that sentence is easily overlooked when the money is flowing freely: there are a lot of big-name startups right now who sure seem to have business models that are the equivalent of selling dollars for 95 cents. You hear a lot of things that sound like "if only we can solve this NP-complete problem and/or ultra-efficiently operationalize labor-intensive tasks that have been the bane of much larger companies for decades, we'll print money!" If only...

In particular, you can hand-deliver low-margin things (that people clearly want) and goose your revenue like crazy...but can you do it profitably in the long run? I'll bet you a Kozmo messenger bag that you can't.

This is more of a problem in the valley than elsewhere. People so techno-utopian that they sometimes forget to ask basic questions of feasibility, because revenue growth.

That said, I have no idea how you get to hundreds of millions of dollars in funding without someone taking a step back and saying: "hey, wait a second...are there unit economics here?" That's just nuts.

> "I need to pour millions into this idea to make a single dollar back", I start questioning whether it's a viable idea in the first place.

In the late 90's, Google had tens of millions of dollars in funding, and took 3 years before it started making revenue, with the launch of Adwords in October of 2000.

But then you'd want them to grow, and no potential kickass employee wants to go work on this farm in Iowa that you've romanticized.

I submitted that article separately on HN:

https://news.ycombinator.com/item?id=9013328

Why that HBR article did not mention Walmart as an exception to their "Better before cheaper" rule?

The same approach could be applied to one's career quite successfully.

thanks for that hbr link. the whole analysis is worth a read.

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