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Comment by Spivak | Hacker News Reader

How do you think startups make money? We're talking about two different things -- one is the value the business provides to their customers which is selling goods and services, and the other is the value the business provides to the founders and investors which is profit.

Whether or not something is a lifestyle business is a shuffling around of who owns the business and gets the profit, not at all about how the business operates except as second order effects.

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> How do you think startups make money?

Do you think most modern startups actually do make money?

A great many don't, they lose it hand over fist. Especially those that intend to grow fast and get bought (or IPO) fast. It worked for a number of current big names, and many smaller names that those big names since bought.

You're just describing a growth strategy. The whole time they're burning cash they're still providing value to their customers. Nonprofits don't make money either and still provide value.

> Nonprofits don't make money either and still provide value.

They can make a surplus? And then reinvest it to further their cause?

Which is also what growth companies do? They reinvest their own earnings along with outside investment, which is the same as nonprofits (via donations).

Are the providing value or reallocating it from VCs temporarily in order to obtain enough market share to then extort consumers for higher prices (less value per dollar) later on?

> obtain enough market share to then extort consumers for higher prices (less value per dollar) later on?

Are there many examples of this extortion?

Casper and Blue Apron plummeted after adjusting pricing because they weren’t providing sufficient value. Uber became profitable. It probably lost some customers. But nobody I know felt extorted by it—those who didn’t like the new prices stopped using it.

>Are there many examples of this extortion?

Uber is definitely such an example - a lot of taxi companies disappeared because they couldn't compete with the scale of Uber with its subsidised prices.

Now Uber have significantly increased their prices there are a lot fewer alternatives to turn to.

> Now Uber have significantly increased their prices there are a lot fewer alternatives to turn to

Can you give an example of a city where Uber has a meaningful monopoly? Hell, I’ll even give you Uber and Lyft. Where the alternative modes of transport—be it private cars, public transport or taxis—are non-existent to someone who would have otherwise made use of them?

It's not that the alternatives are non-existent, it's that their cost (in dollars or some other parameter) have gone up a lot. For example, if you don't use Uber or Lyft in San Francisco, it takes a LOT longer to hail a taxi on the road than it used to.

https://news.ycombinator.com/item?id=23216852

Or undermining other similar businesses that actually have to make more money than they spend. After said businesses are gone, and the investor cash dries up, what benefit is actually left?

How does that work with other kinds of investments like loans? You don't "save up" to open a restaurant, you put together a business plan and go to a bank. VCs are just doing that but willing to take on riskier businesses in exchange for equity instead of interest payments.

I suspect you'll find few restaurants opening up with the intention of opening as many locations as possible as quickly as they can be built, all providing food at under cost for years on end until the local restaurant scene is sufficiently disrupted that McDonalds buys them to make them go away.

I mean you're essentially describing DoorDash + competitors and HelloFresh + competitors. But in the restaurant industry proper it's the same thing except your exit isn't to get bought by McDonalds but to secretly dominate the mid-high tier dining scene in a given area and collect all the profits. So they won't build a bunch of the same restaurants but will take on massive debt to buy everything in a trendy area. I didn't really expect that in 2018ish that there would be a pivot from these companies to a real-estate play so they don't even have to own the restaurants anymore but can force them to use the company payment system and suppliers but it makes total sense in a boring dystopia way.

"Support Local Restaurants! (being puppeted by a massive hybrid restaurant/real-estate conglomerate)"

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