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Comment by ownagefool | Hacker News Reader

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.

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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.

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