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Comment by usrusr | Hacker News Reader

From my consumer's perspective, the most annoying part is when a company provides a service I like, they look like they could be reasonably profitable for an investment of x but not for 10x, and then they suddenly raise to 10x or more. It's inevitable then that they will eventually ruin the existing service in search (usually futile) for some mythical product/market fit that was somehow projected be appropriately profitable for that 10x investment.

It's particularly irritating with paid services, where all of a sudden paying customers turn from highly valued into a legacy nuisance.

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I think the problem is that funds like SoftBank have a very "winner take all" attitude about startups. They threatened my startup by basically saying that if you don't take the XXX millions of dollars, we'll be happy to give it your competitor who will out-fund you. These vcs want to pump a company so full of cash that they essentially take market domination of a vertical.

> They threatened my startup by basically saying that if you don't take the XXX millions of dollars, we'll be happy to give it your competitor who will out-fund you.

The reality though is that most of the companies who take the money end up just giving most of it to Google or whoever and then going bankrupt 18 months later. At this point I think society would probably be better off if raising VC funding was banned for early stage SaaS startups since it's really just a form of dumping, but at least much of the damage is eventually self correcting.

> giving most of it to Google or whoever

More common to over-hire, I think. Server costs tend to scale well with your customer base.

I think most startups spend way more on advertising than servers.

Depends on the nature of the service, the range goes from something that could be served globally from a single box to basically reselling an upstream cloud provider.

But gp was talking about hiring persons, not servers. Advertising can be scaled back much easier than over-hiring. Even if almost everybody is fired again, the inefficiencies that established themselves during the headcount glut can usually not be unlearned again.

or PR. Good PR people are insanely expensive.

> Server costs tend to scale well with your customer base.

They used to, when they were your servers. Now that they're AWS's server, there can be a 10x price premium, which amplifies the problem introduced by provisioning for scalability at all costs.

When it's nobody's job to worry about costs, it's very easy for them to tend to balloon out of control. Of course, there's not much point in worrying about a $1M cloud bill with $100M in the bank.

It is scary to see how some companies do marketing and PR... Shoveling 10s of millions into companies that do not deliver short term value at all... You need ads and press and whatever to sell product, but there are many ways to do that. The Coca Cola ‘we need to be a household brand’ way is the most expensive and is probably not what a startup should be spending on, yet they do, a lot.

Coca-Cola doesn't spend a lot of money on marketing by choice. Selling a commodity is expensive because your only differentiation is brand and possibly distribution. P&G is another example.

Sure, for Coca Cola, not for a 50 people startup in by far most cases.

I worked for a startup with a well liked paid product built through iteration (test prep product). Then it was dropped on the ground and discontinued cause they raised a hundred million and now needed to build the founders vision, a free consumer project designed and built for years without showing it to potential users. Didn’t work out. So I’ve seen that happen.

It is so sad when too much money destroys products / companies.

IMHO great products are only built when the ultimate stakeholder is the user and this can get very difficult to maintain when you are effectively not financed by your users.

do you mind me asking what was that service? not even the company, but more the product itself?

Shit, this sounds like a previous startup I left. Product-market fit acquired, growing steadily, near-profitability. Then Series C, and sudden pivot to more ambitious product. A few months/years later (I left before this, seeing the danger) most of the staff gets laid off. :\

This is basically a gross misallocation of these kinds of investment deals, but you're probably right and it's all too common. It says something about oversight as well.

There is a very real rationality behind SoftBanks ideal that they want to do things 'big' and 'dominate'. So, so many markets go to a single or small number of winners, and the surpluses tend to go to one winner.

SoftBanks strategy of finding 'something that is working' and then giving a company maximum firepower to basically replicate that thing and dominate globally, makes sense for them.

Now - some things don't scale well, and some things need a lot of market adaptation ... but the logic is sound.

Softbank 'threatening' a company that doesn't take their money is not very nice, at the same time, it's not really a threat, rather it's just the communication of their rational strategy: 'we take companies that have figured it out and give them the means to win the market'. Logically, if ABC Corp doesn't want to go that route, they'll be looking at DEF Corp and GHI Corp.. This is not new, just the scale if it all seems daunting.

The difference we're seeing in scale is due to the new reality that it's no longer about 'winning America', now it's about 'winning the world'. Much in the same way Hollywood films now, the big ones, are designed for international markets and without a theme, the stars, a story that will 'win' globally, the massive budget cannot be justified.

The notion of companies pivoting on something that's working, towards some 'grand vision' is kind of sad, but in a way understandable ... every one of us Entrepreneurial minded people have an 'irrational' bone where we want to 'do this thing' that compels us forward, it's just a matter of being very pragmatic about it.

$100M is a big round B or C or whatever, it's there to scale something, not to 'find a bigger product market fit'.

It's one of the classic mistakes of taking on too much money ... but it can be mitigated by really thoughtful leadership. If you take the money on the right terms, and spend it only as you needed it surely it can be mitigated, especially with the right kind of coaching, maybe by people who have been there.

I've noticed this too... shit I've even been on the dev side of it. I'm glad they pointed this out in the "Silicon Valley" show where Richard is told he could have just not excepted so much money.

I would love someone to write a blog post/article on this effect.

> It's particularly irritating with paid services, where all of a sudden paying customers turn from highly valued into a legacy nuisance.

Instapaper, ugh. So frustrating to see a service I loved get absorbed by Pinterest and then spit back out. Meanwhile I've churned over to Pocket.

Came here to say roughly the same thing. I really don't understand some of the numbers, especially for easily replicated business models. e.g. 120M for MyDreamPlus, a co-working space start-up

Some back of the envelope stuff approx $200/desk/month

If they could fill a 1000 desks a month it would take 50 years to reach 120M. I've no idea what they consider what the company might be worth.

Anyone have any insight on what I'm missing?

Probably real estate speculation. They probably will start purchasing real estate, use the rents to defray the mortgage, and then flip the real estate.

It's much like nuts in California's Central Valley. You generally make about even on the nuts or even a loss. But you make all the profit when you harvest the wood of the stock you grafted onto (generally something like Walnut).

The finance guys come in and make an expected lifetime value of a customer. So at $200 a month, that's $2400 a year. But right away they assume the average person will stay with them for 5 years, so thats $12,000 per signup.

Now that they have this figure, all math is based off it. So if you sign up 100 people you just made 1.2M of expected value. So if you want to be worth 120M you just need to be able to get 10,000 signups.

Of course, when reality hits this all falls apart. Customers churn with new competition, so the 5 years was too optimistic. You also to lower your rate to $100 a month to keep up with the market, and costs increase.

That's why you try to get acquired before that happens.

There really is a different mentality when it comes to startups. When I think about any of my ideas I shoot them down because I can't see any value in them longer than 5 years or diminishing returns.

Can anyone recommend some good reading on where the value comes from or how it can be created?

>It's inevitable then that they will eventually ruin the existing service in search (usually futile) for some mythical product/market fit that was somehow projected be appropriately profitable for that 10x investment.

Or they will just be bought up and the result for the end user can be seen again and again.

Once a startup raises such insane amounts, they are forced to grow at the same speed. Which in alot of cases is just not feasible. That leaves only a buyout.

Smyte comes to mind here.

https://www.theregister.co.uk/2018/06/22/twitter_swallows_sm...

This is how I feel about Slack and Trello...

Wait, why Trello? Isn't it still free?

Or start-ups that are set up to just kinda help out like Patreon but now that they took massive investment they have to be greedy about what was supposed to be a charitable endeavor

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