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Comment by arthurofbabylon | Hacker News Reader

Call me cynical, but I didn't find this recent wave of startups to be innovative. It was defined by a systemic deployment of playbook tactics, copying what worked elsewhere. Nothing new, just trying to capture industries/value. Perhaps with the deterioration of venture capital infrastructure we will see more innovation – that is wholly new solutions and paradigms.

I also think it is worth pointing out that historically (not recently) a lot of startups began not in order to make money but to provide real value to humans/society. I like to remind people that it is easier to make money when you first build something that people value than to build something that people value once you've made money.

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I think a lot of startups were just trying to be 'rent-seekers'. Placing themselves between customer and product/service suppliers and trying to make money by providing a small service. Or sometimes just trying to grab all the inventory and auction it off at higher prices.

This may work when interest rates are close to zero, but when they creep up, it becomes easier to make money holding t-bills.

And thus, those startups go kaput.

“It’s only when the tide goes out that you find out who was swimming naked” (Buffett)

It’s only when there’s an opportunity cost of capital that you find out who actually had a business plan.

I agree with the first half. Having a plan is not really what matters, you can have a bad plan (and arguably, if the competition is for funding, there will be a lot of polished, bad plans). We're finding out who actually has a good idea/insight.

How about “…find out who had a [sustainable] business plan”

I think that was a function of the VC model of "throw 15 baseballs, hope one gets hit out of the park".

Hit it out of the park is usually meant somehow jamming yourself into a pre-existing economic relationship (taxis, food delivery, apartment rentals) and extracting rents.

Hopefully high interest rates will cause those "startups" to die a grisly death.

“Somehow jamming yourself” by doing research and development to create hardware and software that enabled the pre existing relationship.

Bringing GPS/mobile broadband/mapping apps/smartphones together to create a better experience is obviously worthy of something.

> I think a lot of startups were just trying to be 'rent-seekers'. Placing themselves between customer and product/service suppliers and trying to make money by providing a small service. Or sometimes just trying to grab all the inventory and auction it off at higher prices.

That's the whole "drop-shipping" industry.

> Call me cynical, but I didn't find this recent wave of startups to be innovative

I’ll stick my neck out and say that the vast majority of startups never were innovative, it’s just that money was essentially free for a decade.

Being around the VC funding ecosystem, I can confidently say you’re not cynical. Some of the most frivolous startups got their funding in the zero interest rate era because no one was doing their due diligence. Sky high unicorn valuations allowed VCs to basically just fund everything. You didn’t have to have much beyond a pitch with made up projections and execution plan to get money, especially if you knew someone in the VC circles.

But now that most of those bubbles have burst, VCs are back doing what they were always supposed to do: due diligence. You’d be hard pressed to find funding unless you have a name or have a business that’s already doing great. And on the flip side, startups themselves are noticing this. My buddy’s startup has been approached by a bunch of different VCs encouraging him to pitch for funding and he’s refused. He’s realized that he’s already making money and has a solid business execution. He’s not willing to give up the gains for some extra cash. He’s taking the slow growth route.

I think we saw this in some Hollywood studios - they find a movie that worked and treat it as a 'playbook' to just rinse-and-repeat it in all variations.

Eventually, audiences just become fatigued and the 'business creatives' lose to some other genuinely creative theme that takes hold. Then they return to exploit it :-(

It's like "Speed," but in an Uber!

You think Hollywood is bad, you should see the porn industry!

Nothing but bipedals and pizza guys. They can’t start an orgy with a delivery of healthy foods for once? Geez.

"Hello moneybags, I have this idea for an app, it's super niche and wastes almost as much time as doing the task without the app except we get to charge them for it! Our costs are really cheap because we mostly pay in equity and we're exploiting the generosity of other startups to keep our 3rd party service costs down!" <- feels like 70%~ of ideas.

It's the wrong way of managing risk.

Startups are about increasing risk and that means good startups are about managing that risk.

There's different strategies for doing it. The current one en vogue attacks the ambition of the ideas

By managing risks, do you mean "move fast and break things" or "get a way too small team for way too big project" or "put the demo in production" and "skip the documentation, we'll do it later" because first mover advantage?

It's not always easier. There are too many gatekeepers and rent seekers now who will prevent useful services from becoming profitable

What wave of startups has had a good consistently profitable idea since Facebook went public? AirBnB and who else?

Are you trying to say there have been no profitable companies created since Facebook?

Tech companies that have gone public since Facebook. Name a few besides AirBnb that are consistently GAAP profitable not by their own made up metrics like Uber

Square - profitable in 2019,2020, 2021 (annual basis).

Box, Dropbox, Square. Now if you want to count Chinese ones trading on Nasdaq there’s more

Stripe would have been there if they actually didn’t blow their IPO window.

This is not a good argument because a lot more would be profitable if interest rate was higher, they just didn’t need to

Somewhat complicated.

If you're profitable at a unit economics level, and your CaC stays relativly stable as you scale marketing efforts, it's fairly logical to sink your would be profits into that CaC and associated costs ( i.e. you might have engineering costs to scale a platform ).

Now obviously if you're bootstrapped, you're managing cashflow, and you might keep a bit for a rainy day, but if you have several years runway of someone elses money, you want to grow the entity. You don't give away equity to end up with less money. You need to grow the pie.

Of course, there's still a lot of faulty logic and bs. CEOs be like, I'll just get rid of dev and be profitable. Alright mate.

And startups and money losing recently public companies make the same usually false argument. They are false for three reasons.

1. The lifetime value is calculated out to far.

2. Earlier cohorts are usually less costly to acquire and have a higher lifetime value as the true fans. They are going to be your most loyal customers. Look at what happen to all of the prepackaged food delivery companies and whatever the company that was delivering trunks of clothes.

3. They never expected interest rates to rise and easy money to disappear.

An example would be that if Apple thought it would be just as easy to acquire the second million customers of its headset as it would be to acquire the first million at $3800.

So I was CTO of a bootrapped startup (10s of millions ARR ) growing approx 70% YOY, likely a unicorn but never discussed on HN.

What I would say is the argument isn't false, but the assumptions often are.

You will for example have diminishing returns on the CaC. Spending more will make the number go up usually.

This explains why you wouldn't just spend it all year 1 and refinance.

Finance is indeed more expensive, and black swan events can cause mass churn, this why pulling out costs might sound good on paper, but in reality could potentially screw yourself over.

Indeed the payback of the customer needs to be short enough to validate profit. The longer it is, the more likely one of those black swan events will distrupt lifetime.

But I suspect there's more businesses out there doing this that are discussed here.

Startups are a special kind of company I’d say. I’m kinda curious myself… I guess openai, tho technically I doubt they’re profitable. I’m probably just forgetting a ton of obvious ones!

OpenAI is only surviving because of free/reduced priced hosting on Azure.

Very true but I think it should be considered successful nonetheless, in a way that the rest of the “”pre-profit”” startups aren’t. I mean, being the final spark for an event the size of the Industrial Revolution is pretty good! But I’m probably just biased.

The metric for success for a for profit company is profit anyone can sell dollar bills for 95 cents. OpenAI is particularly a bad example since they have negative marginal costs. Which means the bigger they get, the more money they lose.

Adyen was a B2B fintech startup that made profits as it hit scaleup, and hasn’t looked back. Wise is a B2C play, listed too and seems sustainably profitable. I think the people behind both of these are connected, so my bet is that there are clusters of well-run, second-time-around (or more) founders building very solid businesses in all sorts of sectors.

Fair point. I only keep up with US public companies.

  Nothing new, just trying to capture industries/value.

None of what you said sounds cynical imo, just un-businesslike I suppose.

Who cares about shifting paradigms / something brand new? Not every business has to change the world. Most shouldn't.

The whole point of a business is to capture value full stop. Not to play around with lofty surreal visions of grandeur.

> The whole point of a business is to capture value full stop.

That is certainly one school of thought. But businesses that are about something more than just "capturing value "are more likely to actually become valuable. Creating value is almost always better than just capturing value.

Ah it was a miscommunication then, my bad!

I interpreted "capturing value" as meaning "capturing potential value" i.e. some untapped resource, or in other words generating value.

So it sounds like we're talking about the same thing then just in different ways.

Ahh, ok.

Yes, when I've heard businesspeople say "capturing value", they've meant it in a manner analogous to extracting a natural resource. The value is already there, and they want to capitalize on it. That's not necessarily a bad thing.

But I think it's better to create value where none existed before.

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