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Comment by beowulfey | Hacker News Reader

I know nothing about starting a business. Can someone explain why so many companies these days struggle to make a profit? Is it because they spend with wanton disregard of long term financial balances, thanks to huge up-front funding boosts clouding their optics? Or because inflation has so screwed up how customers value things that companies cannot charge what their products are worth? Or maybe that they are all just bad products?

I have no idea, but from an outsider’s perspective, it is starting to get silly hearing about so many companies incorporating shitty manipulative pricing schemes in poor attempts at profitability. It just seems unsustainable.

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This seems to be particular for software businesses the require huge scale in order to operate. Uber is still not profitable, DoorDash is not profitable, Reddit is not profitable. The markets these companies are trying to serve are ginormous, and therefore require huge amounts of capital to efficiently scale. It's even more difficult for companies that combine real life with software, e.g. Toast, Uber, DoorDash.

Compare that to Netflix, which is a business that was able to start small and scale with time. It also had huge first mover advantages as most other profitable software businesses do. Network effects are extremely powerful, and benefit first movers. Uber has spent years trying to cultivate network effects, but the service it provides exists in the real world, with real people and real problems.

I would argue Reddit can be profitable if it knew how to properly scale and innovate with advertising (particularly via search, which is where Google makes its money). There's no real reason Reddit can't be profitable if Instagram, Google, and YouTube are profitable. As for real world software apps, it's a lot more difficult.

There are basically a ton of companies in the business of delivering services that people/businesses want but aren't willing to pay the cost of providing them. This is especially true with personal services that don't really have significant economies of scale but it's a big factor overall.

I work at an unprofitable VC funded startup. We plan to be profitable soon, but so far we haven’t been. We’re not huge and not glamorous.

The entire point of taking a VC check is to run your business at a loss while you grow. The idea is to jump quickly from $0 to millions in revenue instead of having that journey take years. So you hire good people, pay them well, spend on marketing (in some businesses) and take on customers at terms that are break even just to have customers at all.

You learn if you have product market fit but you may not learn if your prices actually sustain your business. And then you can either raise prices (hard) or fire people (hard) to get to profitability . Or just raise more VC money and “make it up on volume”

I think this is the exact situation I'm asking about, so thank you for answering! It's a good discussion point.

To me it seems like so many companies start like this, but fail to get past the profitability stage. I guess my question is, are these companies going about this the wrong way? Maybe starting with a big surge of funding to get off the ground is giving false hope to products or corporate strategies that just aren't sustainable. I'm wondering if starting small and letting things grow organically, slowly, is more effective overall in terms of success for businesses. I have no idea though.

What are some examples of companies that grew rapidly with VC funding and eventually became successful, profitable businesses? Netflix, maybe -- anyone know others? (I'm showing my ignorance here, I'm sure there are many obvious ones!)

Don't you know? Business owners are the risk takers, so they should be well rewarded. That means making the most out of everyone working in the company, having to eventually do the least, reaping all the benefits of technological cost efficiencies, able to buy multiple vacation homes all over the world, and so on. These things cost money! And with rising property costs and high interest rates? Someone's gotta pay the bill for that Aspen vaca home, and the business owners have earned that right with their initial hard work leading to their current no work.

Why, and when things get bad, we don't want them to have to sell off their hard earned vaca mansions? Where will their dogs live then? In one of their living homes? No, they get bailed out whenever things get bad, then the economy won't crash aka they don't have to change any behaviors at all.

With these nasty Chinese raising their prices, and gross truckers asking so much money, everything is getting more expensive for them. How will they buy their 3rd 10,000 acre ranch in Wyoming with that kind of price increase? The good for nothing customers should pay instead!

Leaches optimizing leaching as the noose of monetary policy tightens, diminishing corporate profit potential while labor strength improves due to structural demographics.

The desperation will continue as long as money continues to get and stays more expensive than the last decade and a half.

I ran the ideal of a tech startup in point of sale space, launched pre-square, small company, never took investment, 1M in revenue first year…

In an established market, you’re always going to lose 80% of deals to people who have more funding. This is hard for your frontline employees to deal with, they experience it as unwillingness from cowardly management that they are paying for. Customers experience this as lower pricing, being more stable, more likely to do giveaways.

P. much every company from that era is in private equity receivership (fire the engineers, get lowest common denominator replacements for all employees, run it till customers give up)

I always thought Toast had held up because they had investment but didn’t light it on fire like other places, and thus were profitable.

Very jarring to read this isn’t tractable. The lesson is if you’re a sharp generalist, you’re always better off doing your own place and being brutally honest with customers about what the other game is. It’ll take a decade to play out fully to your benefit, but, independence is worth it

>Can someone explain why so many companies these days struggle to make a profit?

Beside the obvious risk of running a company (competition, incompetence etc.) There is excessive regulation, taxes, paperwork etc. I estimate that cumulatively most of us pay around 3/4 of our earnings to regulation, taxes and other forms of bureaucracy.

So why bother? Not in jest. If you can't be profitable from the get-go, what's the point?

It does end up killing a lot of initiatives. A lot of people who could have potentially ran even small businesses don't. To your point: there is no point really for most ordinary mortals so they succumb to soul crushing jobs. For example many small farmers are in this situation.

As a ongoing example I've heard that businesses are leaving California and New York in droves to place with less regulation.

Part of it is overinflated org charts. Both Instagram and Whatsapp managed with an engineering team of a dozen or two people until acquisition.

Typical SV startups have a dozen or two engineering teams, each with multiple people. I have no idea what they’re all doing, but it probably involves lots of rewrites

To be fair, neither IG nor WhatsApp were actual businesses before their acquisition. Sure, WhatsApp had their euro fee which theh waived for everyone. IG could definitely have been profitable without FB but it would have taken a loooonnnnng time.

There's profitability for the business, and then there's profitability for the shareholders. The latter is the bigger problem because it compels all businesses to become increasingly profitable at monotonically increasing speeds. If only we strangled all the profitability out of the stock market (with some really draconian taxes and regulations) we could rein in capitalism and have a more sustainable economy. But that's a pipe dream.

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