None of the recent advice on the topic mention 'having a profitable business model'. Raising money is not the method, it is a method to extend your runway. Designing a sustainable business is another one.
Your comment is unbalanced, because it only considers costs while ignoring gains, assuming that “cheap liquidity” also creates valuable gains.
Or perhaps your comment is tautologically true: liquidity is defined as cheap when the economic returns are strongly negative overall?
[1] “Cheap liquidity” is a terrible definition, because liquidity is predominantly considered a good thing in functioning markets, and cheap transactions are usually seen as good as well. I am assuming you mean “cheap liquidity” to mean “cheap money” (not a clear definition either) or that “raising funds is easy for startups and costs them relatively little”.
If you must have an elephant-winded reply, surely you most likely know perfectly well what was meant by "cheap liquidity" in the sense of accommodative monetary policy, low interest rates, and quantitative easing more broadly. As has been seen around the world, this was intended to maintain asset levels, liquidity in key markets such as mortgages and bonds, reduce unemployment, and keep investor and consumer confidence buoyed. What we received in addition to this partially successful set of policies however were significantly cheap debt encouraging record household and corporate debt levels, near zero savings rates incentivizing spending and penalizing retirement savings, artificially inflated asset levels with the twofold consequences of encouraging risk taking at unprecedented levels to achieve quick returns and of outsized housing prices keeping many renting or paying a very large portion of their income for basic housing, and a slew of overpriced tech companies and startups, many of which were scams and never going to be profitable, that probably won't survive the current, ongoing market slowdown. Zombie companies, record wealth concentration, market control and production being concentrated into increasingly fewer firms through aggressive acquisitions and mergers, and rampant inflation are all ongoing consequences of this "cheap liquidity." Many companies have borrowed billions of dollars to raise dividends and to initiate stock buybacks as is their won't during low interest rates. However, many of these companies operating in critical industries also expect government bailouts without any strings attached or consequences given. Please do be pedantic and explain how all of this is positive, perhaps in a 'tautologically' true way and balanced manner.
Perhaps the art of bootstrap is not discussed enough here.
Twelve years ago, I bootstrapped my own company. Took a very small loan from my parents ($5,000), got a friend to work with me and we were off and running. We still worked our full time jobs, but I was taking vacation on Thursdays to cold call clients and give them my elevator pitch. Then it was setting up appointments, making the presentations and trying to get people signed up using a subscription based model we had developed while he was working on the mobile app development.
We were about two months from generating enough revenue to quit our full-time jobs when my buddy died suddenly and unexpectedly. It was pretty hard to continue after that. I slowly wound down the clients I had signed up over the next year or so, and quietly closed the business after two years. I still do business under the company name, but the organization is long gone.
If nothing else, it proved to me you can bootstrap your own company on your off-time, and eventually make that transition to full-time with very little to no overhead (office space, equipment, employees). Also, it showed me you don't need $10M in funding to build a niche company serving an underserved industry.
But bootstrapping isn't easy. Cold calling people isn't easy, getting out there and grinding away on a consistent basis isn't easy. Having your own money invested with a "do or die" attitude isn't easy. Believing in your idea isn't easy. I'm not sure constantly having to raise money is any easier, but the difference is one one hand you're constantly working on your product and business which makes your business sustainable. On the other hand, I'm not sure constantly chasing investors and their money will really benefit your company in the long run.
> But bootstrapping isn't easy. Cold calling people isn't easy, getting out there and grinding away on a consistent basis isn't easy.
VC funded business have all these same challenges. On top of them you need to somehow find time to raise money and endure board pressures often conflicting with your vision as a founder. I have two bootstrapped business behind me, and in the middle of a third, and although I could use more funding, I am also concerned about taking it. I think I would be overwhelmed with the additional complexity (perhaps I am not one of those "infinite business capacity" founders).
Yeah it was devastating. Died of a massive heart aneurism. We were scheduled to meet that day and his wife called and told me what happened. I guess he died pretty instantly. It was so massive, it literally ripped his aorta in two.
The company he was working at came out in full support of his fiancé. The entire church was standing room only. They had some 150 people just from his office who knew him which was really heart warming. He was a really great guy, gone way to soon. He was still in his 30's, I was pushing 40.
When something like that happens, it really makes you think about your own mortality and if you're really living every day to the fullest, or just breathing. It really made me take stock and make a lot of changes in my life. I just don't take anything for granted anymore.
> Many business models must pass through these phases.
I think there are very few categories of companies that ~must~ go through a "Growth Phase". Sure, there are rocket companies like SpaceX and Uber/marketplaces that only work at scale... but the majority of internet software companies cost very little to get up and running and have very, very high gross margins.
Meaning for many companies, the only thing stopping them from immediately entering the "Sustainable Phase" is an incessant need to maintain extremely high growth through excessive spending.
Is it? Outside of Silicon Valley, I don't think there are many businesses that deliberately lose money in an unsustainable way. I know all of mine have been (at least marginally) profitable from day one, at least.
In software it's development costs. Outside silicon valley, in the non-techie world, there are many things that work the same way. Eg real estate - building a building is an upfront investment of piles of money that the building doesn't earn back for years. Or eg opening a McDonald's.
The main difference in tech startups is that it's not just entrepreneurship, it's innovation too, so it's unknown whether the product will earn back the money. But sometimes McDonald's falls, builfings fail, etc. The odds there are better though.
There is no equivalent to MoviePass in the rest of the economy aside from literal MLM. They mailed people a credit card for what was it ten bucks a month, you could watch movies worth more than that with it, and that literally was their business.
And there's plenty of startups out there right now that basically work the same way. The 'business model' is gift people free stuff, so investors gift you free money and then hope you can somehow IPO and dump it on the retail investors.
The 6x6 mall in San Francisco is a great example of this. Someone built an entire mall next block to Westfield and it sat empty for 6 years. It's still empty today, but IKEA signs showed up a few months ago so it looks like San Francisco is getting a downtown IKEA.
Upfront investment: $150,000,000 according to [1]. Never got a single tenant or opened its doors.
[1] https://archive.curbed.com/2020/7/23/21334508/dead-mall-6x6-...
Tech exists outside of Silicon Valley.
> The main difference in tech startups is that it's not just entrepreneurship, it's innovation too,
Innovation exists outside of tech.
Let's say I have an idea for a new type of air purifier. I will need to build prototypes, test them, sort out manufacturing, build large numbers, get agreements with various distributors, and all this while not bringing in much if any money yet. If all goes well, however, the investment pays off and once I'm making my new product at scale I more than make up for those initial costs.
The above seed stage startup could be in the boat where they won a customer bootstrapping, but are now scaling through the use of sales engineers etc.
A 100k per month burn may translate to needing to win 1-10 deals to break even.
In this one, I'd point to the title ("Extend your Runway"), and if you really picked at those nits I might fall back to "Default Alive."
All advice in these articles applies to the other kind of businesses ("makes $10k and spends $100k/month...") that likely got in that position by what in some cases is basically a ponzi scheme of fund raising, which was completely fine until just a few days ago and then they realized it's not going to work forever. This then resulted in a widespread panic and all this advice about "how to survive" and suddenly realizing that you should also "make the product amazing". These should be default rules to live by for any business, is all that I am saying.
Here's how to grok VC: first of all, realize that even the VCiest VC understands that VC is a niche, and they'll send you on your way if you walk up to them with a bootstrap opportunity, even if it's a good bootstrap opportunity. This is a site run by VCs as a funnel for the VC scene in a VC town, so you'll hear a lot about VC here -- but bootstrapping definitely has its place. If you listen closely you'll even hear people talk about opportunities being better suited to VC or bootstrapping. Opportunities that can be bootstrapped should be bootstrapped, because then you get to keep more equity.
Here's the critical point though: not all businesses can be bootstrapped. What happens if you try to organically grow your way into a new wide-open opportunity in a winner-take-all market? Some other guy raises a boatload of VC, beats you to it, and shuts you out. VC eats bootstrapper lunch. In theory, the returns from these outsize victories are great enough to offset the failures, but as with any kind of investing it really comes down to educated guesswork.
It's not a ponzi scheme because on occasion it is wildly successful. It systematically reduces the time required for industry to colonize new technological niches. However, it does fall flat on its face from time to time, because that's what happens when you run instead of walk (or perhaps parkour instead of run).
Not at all that extreme, I was just bringing attention to the fact that VC funded startups get most (all?) of the talk of the town, making them almost ubiquitous, where the reality is that they are just one of the ways to start and run a business. In particular, none of these 'advice' posts we've seen lately here on HN and elsewhere seem to acknowledge the existence of 'non raising funds' startups which is basically what I objected to in the original comment.
By definition if you are profitable you don't need external capital to exist and thus don't need vc money
Given two companies competing on the same problem, where one is profitable and one isn't, which is likely to come out on top? I'd argue it's the one that brings in the most money (via profits + funding). At early stages, funding will almost always be greater than profits. A profitable company that does not seek investment will eventually lose out to an unprofitable one that has funding because it will grow faster. At some point, the larger company will seek to optimize for profit, acquire the profitable company, or become the default company for the problem space (a near-monopoly).
The sad state of current affairs is that the market is optimized to promote dominance, not capital efficiency.
One can hope.