Hacker News Reader

Comment by iamflimflam1 | Hacker News Reader

Anyone working in a startup right now should be evaluating these hard truths from the article:

    We raised a ‘hot’ Series A, but have not proven PMF
    Our uniqueness is more in our narrative than in our product
    We are building a feature, not a product
    We have no clue how to get solid unit economics
    We have built a high-pay ‘9 to 5’ spoiled culture (btw, ‘Startups are hard’ is not meant to be true only for Founders)
    Our top performers will quit as soon as they find another job

If you are one of the “top performers” then you should be thinking about how much you really believe the business can make it.

View on HN

Startup companies in many ways are like funded high-risk research projects. They live and die by the support of their benefactors. In this case, the benefactors are investors who are interested only in one thing -- the growth value of an asset, their share of your company. If it's all inflating, then it's all good. If not, then the research project comes to an end. Whether or not they generate real revenue or provide customer value seems to be primarily an afterthought or side-effect of growing the asset value of the company. Startups are really financial products more than technology companies in many ways.

Maybe we should call these startups investor-funded businesses (or perhaps more precisely, non-revenue generating pre-market fit investor-funded technology-centric companies). Then again, maybe that's what startup means these days. In which case I guess 20% of customers generating 200% of cash might make sense.

Thank you for succinctly encapsulating what 'startup' means! I can now die in peace.

May the farce be with you

Investor funded/investor-driven businesses ("startups" in the Silicon Valley sense) are not businesses in the classical sense - they are financial products.

The startup company is the product, sold to investors. The company grows its value by growing the value of its assets, which is the shares in the company, by creating and growing the perceived value in the company's technology, team, products or services, in a growing market of increasing investor interest, even if those products and services are never delivered, sold, or offered to customers for profit or in any manner. For an investor-driven / funded business (the Silicon Valley-style tech startup), growth is most important as measured in growth of the company's value. The actual products or services of the company are just by-products of what is needed to support that growth and provide a mission, if the startup even needs to deliver those products or services at all in order to increase its value to current and future investors.

The startup company's market are investors. The market demand is determined by investor demand in a particular industry sector or interest area where there are current and future investors. Demand in that industry sector is defined by the potential interest of later stage investors or public markets in that industry sector. It is also determined by the solutions in which the company aims to offer products and services, whether or not the company currently does or will in the future.

Since the market are investors and investors are driven by the potential for future investor interest and demand, investors are very much driven by publicity and "hype" as it serves to increase the current and future value of their share of the financial product, the shares in the startup.

Current and future value have very little to do with the products or services the company offers now or in the future other than create a perception of value in the company's assets.

Case in point: https://news.crunchbase.com/transportation/autonomous-drivin...

Shows all the factors at play here:

* Company founded by kids who know / knew nothing about the space

* Investors who smell money opportunity and see an opportunity for asset value inflation

* Invest in the company, rush to multiple rounds, based on hype

* Company goes "public" using scam/sham SPAC approach (yet more proof of "startup" as financial product)

* Then the company goes bust after it goes to market because the whole thing was just asset inflation, and when the bubble pops, it goes poof

- I also find it curious that Techcrunch calls these obvious startup-as-financial product companies Upstarts and not Startups. A distinction without a difference in many cases.

Say you generate +$100 in cash. It is typically composed of customers generating +$200, and other destroying -$100. Typically you have an a) small fraction of cash-generating customers bringing in your +$200, and another b) small fraction of cash-losers explaining the -100$. The highest RoI actions are to focus on groups a) and b)

In what way would customers destroy cash? Are you mixing operating expenses with income? All customers should have some cash contribution, associated cost of service, and LTV. To say that some would net generate more cash than others is an odd way of attributing finance to individual customers. Regardless to say that 20% of customers generate 200% of cash is an odd way of looking at customer cash contribution. If you have individual costs associated with individual customers, that should be dealt with in operating margins and cost of goods / cost of service.

Maybe instead of customers that create cash vs customers that destroy cash you can think of the customers whose revenue / LTV and cash contribution is greater than their marginal operating costs vs. those customers whose LTV and cash contribution is less than the marginal operating cost. That makes more sense to me than this 20% / 200% stuff. After all what does "200%" of your cash mean anyways? Do you mean 2x cash contribution vs the money losers?

I also find it interesting that during the hyper growth cycle of startups, the revenue and cash contribution of different customer don't matter much to investors. Rather, during hypergrowth, it's just grow and acquire customers at full speed, forget about individual customer cash contribution. But when times get tight, it's not just focus on revenue, but also focus on your most cash generating customers first. This results in crazy whiplash of introducing free and low-cost plans to get early user adoption and get those growth numbers, and then later, jettisoning all those free users and low cost users since they don't positively contribute to cash or revenue. Oh yeah and also get rid of the employees too.

This sort of whiplash advice of grow-grow-grow then slow-slow-slow is part of the problem.

as you say, all customers should have some cash contribution. But if you look at 'net cash', and not 'gross margin' as you seem to describe, then customers economics can take a totally different spin. As you net cash should also include cash costs such: CAC, financing costs (especially in fintech), some costs that are often in OPEX and should be in COGS (eg: Tailored developments), etc. 200% is illustrative for logic. it means 2x your net cash balance. I am sure you got the point :)

> We have built a high-pay ‘9 to 5’ spoiled culture (btw, ‘Startups are hard’ is not meant to be true only for Founders) > Our top performers will quit as soon as they find another job

What are startups to do if devs have plenty alternatives that pay highly and offer good working conditions?

Are the alternatives still plentiful? I'm not sure that's true even now, and I doubt even moreso that will be true in the coming months.

There might be difficult times ahead in the next ~2 years, but I'm talking about a longer term. There is too much software running in the world - mostly in enterprise - and there will always be someone who is willing to pay more money and offer better conditions to devs.

> and there will always be someone who is willing to pay more money and offer better conditions to devs.

This might just not age too well, although I sure hope so :-)

Reply on news.ycombinator.com