Skip to content →

Tag: startups

What I've Changed My Mind on Over the 2010s

I’ve been reading a lot of year-end/decade-end reflections (as one does this time of year) — and while a part of me wanted to #humblebrag about how I got a 🏠/💍/👶 this decade 😇 — I thought it would be more interesting & profound to instead call out 10 worldviews & beliefs I had going into the 2010s that I no longer hold.

  1. Sales is an unimportant skill relative to hard work / being smart
    As a stereotypical “good Asian kid” 🤓, I was taught to focus on nailing the task. I still think that focus is important early in one’s life & career, but this decade has made me realize that everyone, whether they know it or not, has to sell — you sell to employers to hire you, academics/nonprofits sell to attract donors and grant funding, even institutional investors have to sell to their investors/limited partners. Its a skill at least as important (if not more so).
  2. Marriage is about finding your soul-mate and living happily ever after
    Having been married for slightly over half the decade, I’ve now come to believe that marriage is less about finding the perfect soul-mate (the “Hollywood version”) as it is about finding a life partner who you can actively choose to celebrate (despite and including their flaws, mistakes, and baggage). Its not that passionate love is unimportant, but its hard to rely on that alone to make a lifelong partnership work. I now believe that really boring-sounding things like how you make #adulting decisions and compatibility of communication style matter a lot more than things usually celebrated in fiction like the wedding planning, first dates, how nice your vacations together are, whether you can finish each other’s sentences, etc.
  3. Industrial policy doesn’t work
    I tend to be a big skeptic of big government policy — both because of unintended consequences and the risks of politicians picking winners. But, a decade of studying (and working with companies who operate in) East Asian economies and watching how subsidies and economies of scale have made Asia the heart of much of advanced manufacturing have forced me to reconsider. Its not that the negatives don’t happen (there are many examples of China screwing things up with heavy-handed policy) but its hard to seriously think about how the world works without recognizing the role that industrial policy played. For more on how land management and industrial policies impacted economic development in different Asian countries, check out Joe Studwell’s book How Asia Works
  4. Obesity & weight loss are simple — its just calories in & calories out
    From a pure physics perspective, weight gain is a “simple” thermodynamic equation of “calories in minus calories out”. But in working with companies focused on dealing with prediabetes/obesity, I’ve come to appreciate that this “logic” not only ignores the economic and social factors that make obesity a public health problem, it also overlooks that different kinds of foods drive different physiological responses. As an example that just begins to scratch the surface, one very well-controlled study (sadly, a rarity in the field) published in July showed that, even after controlling for exercise and calories, carbs, fat, fiber, and other nutrients present in a meal, diets consisting of processed foods resulted in greater weight-gain than a diet consisting of unprocessed foods
  5. Revering luminaries & leaders is a good thing
    Its very natural to be so compelled by an idea / movement that you find yourself idolizing the people spearheading it. The media feeds into this with popular memoirs & biographies and numerous articles about how you can think/be/act more like [Steve Jobs/Jeff Bezos/Warren Buffett/Barack Obama/etc]. But, over the past decade, I’ve come to feel that this sort of reverence leads to a pernicious laziness of thought. I can admire Steve Jobs for his brilliance in product design but do I want to copy his approach to management or his use of alternative medicine to treat his cancer or condoning how he treated his illegitimate daughter. I think its far better to appreciate an idea and the work of the key people behind it than to equate the piece of work with the person and get sucked in to that cult of personality.
  6. Startups are great place for everyone
    Call it being sucked into the Silicon valley ethos but for a long time I believed that startups were a great place for everyone to build a career: high speed path to learning & responsibility, ability to network with other folks, favorable venture funding, one of the only paths to getting stock in rapidly growing companies, low job seeking risk (since there’s an expectation that startups often fail or pivot). Several years spent working in VC and startups later, and, while I still agree with my list above, I’ve come to believe that startups are really not a great place for most people. The risk-reward is generally not great for all but the earliest of employees and the most successful of companies, and the “startups are great for learning” Kool-aid is oftentimes used to justify poor management and work practices. I still think its a great place for some (i.e. people who can tolerate more risk [b/c of personal wealth or a spouse with a stable high-paying job], who are knowingly optimizing for learning & responsibility, or who are true believers in a startup’s mission), but I frankly think most people don’t fit the bill.
  7. Microaggressions are just people being overly sensitive
    I’ve been blessed at having only rarely faced overt racism (telling me to go back to China 🙄 / or that I don’t belong in this country). It’s a product of both where I’ve spent most of my life (in urban areas on the coasts) and my career/socioeconomic status (its not great to be racist to a VC you’re trying to raise money from 🤑). But, having spent some dedicated time outside of those coastal areas this past decade and speaking with minorities who’ve lived there, I’ve become exposed to and more aware of “microaggressions”, forms of non-overt prejudice that are generally perpetrated without ill intent: questions like ‘so where are you really from?’ or comments like ‘you speak English really well!’. I once believed people complaining about these were simply being overly sensitive, but I’ve since become an active convert to the idea that, while these are certainly nowhere near as awful as overt hate crimes / racism, they are their own form of systematic prejudice which can, over time, grate and eat away at your sense of self-worth.
  8. The Western model (liberal democracy, free markets, global institutions) will reign unchallenged as a model for prosperity
    I once believed that the Western model of (relatively) liberal democracy, (relatively) free markets, and US/Europe-led global institutions was the only model of prosperity that would reign falling the collapse of the Soviet Union. While I probably wouldn’t have gone as far as Fukuyama did in proclaiming “the end of history”, I believed that the world was going to see authoritarian regimes increasingly globalize and embrace Western institutions. What I did not expect was the simultaneous rise of different models of success by countries like China and Saudi Arabia (who, frighteningly, now serve as models for still other countries to embrace), as well as a lasting backlash within the Western countries themselves (i.e. the rise of Trump, Brexit, “anti-globalism”, etc). This has fractured traditional political divides (hence the soul-searching that both major parties are undergoing in the US and the UK) and the election of illiberal populists in places like Mexico, Brazil, and Europe.
  9. Strategy trumps execution
    As a cerebral guy who spent the first years of his career in the last part of the 2000s as a strategy consultant, it shouldn’t be a surprise that much of my focus was on formulating smart business strategy. But having spent much of this decade focused on startups as well as having seen large companies like Apple, Amazon, and Netflix brilliantly out-execute companies with better ‘strategic positioning’ (Nokia, Blackberry, Walmart, big media), I’ve come around to a different understanding of how the two balance each other.
  10. We need to invent radically new solutions to solve the climate crisis
    Its going to be hard to do this one justice in this limited space — especially since I net out here very differently from Bill Gates — but going into this decade, I never would have expected that the cost of new solar or wind energy facilities could be cheaper than the cost of operating an existing coal plant. I never thought that lithium batteries or LEDs would get as cheap or as good as they are today (with signs that this progress will continue) or that the hottest IPO of the year would be an alternative food technology company (Beyond Meat) which will play a key role in helping us mitigate food/animal-related emissions. Despite the challenges of being a cleantech investor for much of the decade, its been a surprising bright spot to see how much pure smart capital and market forces have pushed many of the technologies we need. I still think we will need new policies and a huge amount of political willpower — I’d also like to see more progress made on long-duration energy storage, carbon capture, and industrial — but whereas I once believed that we’d need radically new energy technologies to thwart the worst of climate change, I am now much more of an optimist here than I was when the decade started.

Here’s to more worldview shifts in the coming decade!

Leave a Comment

How Tesla is like a Startup in a Bad Way

TSLAs 2019 Stock Price (YTD) (Source: Yahoo Finance)

The word “startup” is usually associated with innovation and speed. But, from a financial perspective, the thing that most distinguishes a startup from other types of businesses is that startups are dependent on investors for cash to fund growth.

A common misconception here is that startups need investors because they are unprofitable. While many startups are indeed unprofitable (in many cases, rationally so), profitability does not shield a business from the need to invest capital (to build a factory, to build up inventory, to order raw materials for production in advance of sales, etc.) to grow. In the case of a rapidly growing, cash strapped startup, this problem is particularly acute as there are no certain past or future cash flows with which to finance growth and so startups have to turn to pitching investors.

By that definition, electric vehicle maker Tesla is a startup operating on an unprecedented scale. While it may have a valuation (over $40 billion market cap as of this writing) and revenues (over $20 billion in 2018) that look like a “grown up” company, as with virtually all startups, it is completely dependent on investors to finance its growth. Since Tesla went public in 2010, the company has raised over $15 billion of debt and equity (net of paying out dividends and repaying loans), over 2/3 of which has gone into funding the extensive capital expenditures (CAPEX: investments in tooling, equipment, factories, land, etc) they’ve needed to grow.

Note: the numbers / figures presented in this post are based on publicly available data provided by Tesla on its deliveries and financials. As Tesla has a penchant for revising old figures, some of these may be based on slightly outdated figures, but I have tried to use the most recent versions I could find. Tesla does not break out much detail by segment or, for automotive, by car model, and as a result most of the figures here are aggregate level. For revenues and gross profitability, I’ve used GAAP numbers from their automotive segment (inclusive of leasing) but for capital expenditures, operating expenditures, depreciation, and cash flows I’m using the entire entity. This is done both because Tesla does not provide breakouts by segment but also because burdening these costs on Tesla’s automotive business is likely both realistic (due to the fact that Tesla’s automotive segment is responsible for the vast majority of revenue and expenditure both today and in the past) and presents a more favorable view of the business (due to Tesla’s automotive segment consistently being more profitable than the others). Refer to this Google Sheet for additional information.

This has fueled an astonishing 76.4% compounded annual growth in revenue from 2009-2018, which is especially impressive considering that Tesla vehicles sell at a premium relative to the rest of the market.

However, because the company continues to require injections of investor cash (having raised $1.5B in the first two quarters of 2019, after burning $323M of cash in that same time), the key question for any current or prospective investor into Tesla is will all of this cash burn ever pay off?

This is a question that VCs are used to asking with the startups they pour money into, but it’s one that is a lot trickier for Tesla shareholders to answer. A small software startup looking for $10M in venture capital can find many patient sources of capital who are willing to bet that the company either turns profitable (because most of the cost lies in initial development and sales) or gets sold at an attractive valuation.

But, Tesla, with a valuation in the $10’s of billions (pricing out most buyers) and needing to raise $100’s of millions (if not more) each year from investors demanding near-term results (i.e. public market investors, large corporate debt holders and their rating agencies), will likely have to prove that it can generate real profits.

But, that isn’t happening today. While Tesla proudly boasts about record deliveries as a sign of healthy demand, the numbers show this is a direct result of Tesla’s choice to shift away from selling more profitable Model S/X vehicles to selling lower price, less profitable Model 3s. This has exacerbated a multi-year trend of declining per vehicle profitability:

Lower gross profits per vehicle are not the end of the world, provided that Tesla can sell enough Model 3s to make up for the lower unit profit and start covering their other costs. But that also isn’t happening. At a fundamental level, Tesla is just not getting any real operating leverage. While booming sales volumes have boosted Tesla’s gross profits, the company’s operating expenditures (OPEX; or spending on sales, administrative overhead, and research & development) have more than kept pace. Rational watchers can choose to interpret this as either an inability to maintain growth without spending huge amounts on R&D and SG&A or as smart, long-term bets on future technologies, but the data is clear that Tesla has a long way to go before proving it can fund its own growth just by selling more cars.

The chart below shows another way of looking at this — it graphs the number of vehicles Tesla needed to deliver to cover its OPEX in a given year against the number of vehicles Tesla actually delivered that year. What is astonishing is that the number of vehicles needed to cover OPEX has gone up dramatically each year. Only in one year since 2014 did Tesla close that gap — 2018 after two amazing quarters — and from the available data for the first half of 2019, it looks like, barring a dramatic shift in pricing or profitability, Tesla will need to hit its guidance of 360,000-400,000 cars to just breakeven.

*Multiplied 2019 H1 vehicles deliveries & deliveries to break-even by 2 to compare directly with data from past years

If Tesla is not clearly demonstrating improving profitability, then for the startup investment story to work, it needs to at least demonstrate improved capital efficiency (how effectively it spends investor cash on production). While one can point to Tesla’s more moderate CAPEX spend since 2017 as evidence for this, it is more relevant to understand how Tesla is progressing in its ability to turn CAPEX investments into profit.

While its difficult to calculate precise figures around capital efficiency in the absence of specific data on the cost to build a factory and how the factories are utilized, a ratio of Tesla’s annual automotive gross profits (adjusted to remove depreciation) to its annual depreciation (a way of measuring how current and past capital expenditures are utilized in a given year, albeit one which also factors in CAPEX from Tesla’s non-automotive businesses because Tesla does not break those out separately) can be instructive. The chart below shows that, where Tesla once generated nearly $5 in profit per $1 of depreciation in 2015, it generated only $2.69 in the first half of 2019 (over 40% less). In other words, if Tesla is improving its capital efficiency and utilization as it ramps production and learns from its past mistakes, its not apparent in the numbers.

Adj. Automotive Gross Profits are GAAP Automotive Gross Profits, Less Total TSLA Depreciation

All of this is not to say that Tesla is doomed — the company’s sales, despite missteps (happy one year anniversary of “funding secured”), continues to grow, and the company has clearly captured the American public’s imagination and mind-share as it pertains to electric vehicles, and equity/debt investors continue to extend Tesla more capital even at its current valuation and debt load.

But, in terms of capital requirements, Tesla is running the largest startup experiment of all time. Earlier this year, Bird raised $300M to invest in (what are currently) money-losing electric scooters. In a sense, Tesla is doing the same thing with the Model 3 but at a far greater scale, all the while trying to develop autonomous driving technology and financing the massive liabilities of its SolarCity business. As a result, Tesla needs to continue to sell the dream both to the public and to investors, and to continue to maintain the vision of future profitability and capital efficiency as a misstep here could cause things to rapidly unravel.

Special thanks Andrew Garvin and Derek Yang for reading an earlier version of this and sharing helpful comments!

One Comment

Advice VCs Want to Give but Rarely Do to Entrepreneurs Pitching Their Startups

I thought I’d re-post a response I wrote a while ago to a question on Quora as someone recently asked me the question: “What advice do you wish you could give but usually don’t to a startup pitching you?”

  • Person X on your team reflects poorly on your company – This is tough advice to give as its virtually impossible during the course of a pitch to build enough rapport and get a deep enough understanding of the inter-personal dynamics of the team to give that advice without it unnecessarily hurting feelings or sounding incredibly arrogant / meddlesome.
  • Your slides look awful – This is difficult to say in a pitch because it just sounds petty for an investor to complain about the packaging rather than the substance.
  • Be careful when using my portfolio companies as examples – While its good to build rapport / common ground with your VC audience, using their portfolio companies as examples has an unnecessarily high chance of backfiring. It is highly unlikely that you will know more than an inside investor who is attending board meetings and in direct contact with management, so any errors you make (i.e., assuming a company is doing well when it isn’t or assuming a company is doing poorly when it is doing well / is about to turn the corner) are readily caught and immediately make you seem foolish.
  • You should pitch someone who’s more passionate about what you’re doing – Because VCs have to risk their reputation within their firms / to the outside world for the deals they sign up to do, they have to be very selective about which companies they choose to get involved with. As a result, even if there’s nothing wrong with a business model / idea, some VCs will choose not to invest due simply to lack of passion. As the entrepreneur is probably deeply passionate about and personally invested in the market / problem, giving this advice can feel tantamount to insulting the entrepreneur’s child or spouse.

Hopefully this gives some of the hard-working entrepreneurs out there some context on why a pitch didn’t go as well as they had hoped and maybe some pointers on who and how to approach an investor for their next pitch.

(Image credit – Someecard)

Leave a Comment

The Four Types of M&A

I’m oftentimes asked what determines the prices that companies get bought for: after all, why does one app company get bought for $19 billion and a similar app get bought at a discount to the amount of investor capital that was raised?

While specific transaction values depend a lot on the specific acquirer (i.e. how much cash on hand they have, how big they are, etc.), I’m going to share a framework that has been very helpful to me in thinking about acquisition valuations and how startups can position themselves to get more attractive offers. The key is understanding that, all things being equal, why you’re being acquired determines the buyer’s willingness to pay. These motivations fall on a spectrum dividing acquisitions into four types:

four

  • Talent Acquisitions: These are commonly referred to in the tech press as “acquihires”. In these acquisitions, the buyer has determined that it makes more sense to buy a team than to spend the money, time, and effort needed to recruit a comparable one. In these acquisitions, the size and caliber of the team determine the purchase price.
  • Asset / Capability Acquisitions: In these acquisitions, the buyer is in need of a particular asset or capability of the target: it could be a portfolio of patents, a particular customer relationship, a particular facility, or even a particular product or technology that helps complete the buyer’s product portfolio. In these acquisitions, the uniqueness and potential business value of the assets determine the purchase price.
  • Business Acquisitions: These are acquisitions where the buyer values the target for the success of its business and for the possible synergies that could come about from merging the two. In these acquisitions, the financials of the target (revenues, profitability, growth rate) as well as the benefits that the investment bankers and buyer’s corporate development teams estimate from combining the two businesses (cost savings, ability to easily cross-sell, new business won because of a more complete offering, etc) determine the purchase price.
  • Strategic Gamechangers: These are acquisitions where the buyer believes the target gives them an ability to transform their business and is also a critical threat if acquired by a competitor. These tend to be acquisitions which are priced by the buyer’s full ability to pay as they represent bets on a future.

What’s useful about this framework is that it gives guidance to companies who are contemplating acquisitions as exit opportunities:

  • If your company is being considered for a talent acquisition, then it is your job to convince the acquirer that you have built assets and capabilities above and beyond what your team alone is worth. Emphasize patents, communities, developer ecosystems, corporate relationships, how your product fills a distinct gap in their product portfolio, a sexy domain name, anything that might be valuable beyond just the team that has attracted their interest.
  • If a company is being considered for an asset / capability acquisition, then the key is to emphasize the potential financial trajectory of the business and the synergies that can be realized after a merger. Emphasize how current revenues and contracts will grow and develop, how a combined sales and marketing effort will be more effective than the sum of the parts, and how the current businesses are complementary in a real way that impacts the bottom line, and not just as an interesting “thing” to buy.
  • If a company is being evaluated as a business acquisition, then the key is to emphasize how pivotal a role it can play in defining the future of the acquirer in a way that goes beyond just what the numbers say about the business. This is what drives valuations like GM’s acquisition of Cruise (which was a leader in driverless vehicle technology) for up to $1B, or Facebook’s acquisition of WhatsApp (messenger app with over 600 million users when it was acquired, many in strategic regions for Facebook) for $19B, or Walmart’s acquisition of Jet.com (an innovator in eCommerce that Walmart needs to help in its war for retail marketshare with Amazon.com).

The framework works for two reasons: (1) companies are bought, not sold, and the price is usually determined by the party that is most willing to walk away from a deal (that’s usually the buyer) and (2) it generally reflects how most startups tend to create value over time: they start by hiring a great team, who proceed to build compelling capabilities / assets, which materialize as interesting businesses, which can represent the future direction of an industry.

Hopefully, this framework helps any tech industry onlooker wondering why acquisition valuations end up at a certain level or any startup evaluating how best to court an acquisition offer.

Leave a Comment

How IPOs are Doing in the Public Markets

After reading my last post on what the decline in recently IPO’d startups means for the broader tech industry, a friend of mine encouraged me to look closer at how IPO’s in general have been performing. The answer: badly

Recent IPO performance vs S&P 500 over last year

The chart above shows how Renaissance Capital’s US IPO index (prospectus), which tracks major IPOs in US markets, has performed versus the broader market (represented by the S&P500) over the past year. While the S&P500 hasn’t had a great year (down just over 10%), IPOs have done even worse (down over 30%).

Leave a Comment

Crowdfunding: Hardware Startups Beware

Hardware startups are one area I spend a fair amount of time with in my life as a VC, and while I love working with hardware companies, it should go without saying that hardware startups are incredibly difficult to do. They require knowhow across multiple disciplines — software, electrical engineering, industrial design, manufacturing, channel, etc. – and, as a result, have challenges and upfront capital needs that most software/web companies lack. This has led many angels and VCs to be wary of investments involving building hardware so its no small wonder, then, that many hardware entrepreneurs have turned to crowdfunding websites like Kickstarter and Indiegogo to try to raise funds for development.

While crowdfunding can be a great fit for certain projects, I think early stage hardware startups should beware. Yes, crowdfunding sites can generate upfront capital that can fund development, but unlike traditional equity/debt investments (like the kind an angel or VC or bank will give you), “crowdfunding capital” has a particularly onerous type of “string attached”: it’s a presale.

Obviously, the entrepreneurs trying to raise crowdfunding capital want to push their projects towards real sales – so why might a presale be a bad thing? For hardware companies:

  • Raw production costs are a major percentage of sales – so even if you raised $1 million, you probably are going to be able to keep max $500,000 after the cost of materials/manufacturing
  • These pre-sales are oftentimes discounted – so you are generating lower margins on each unit making these particularly painful sales to make
  • Except in a few instances, the number of presales tends to not be high enough to meaningfully change the cost of manufacturing (i.e. upfront tooling costs or supply procurement) – which further eats into the amount of capital you have left to deploy on development since you probably have to pay the low volume price
  • It means you need to keep to some level of deadline. There is a risk that you won’t make your own deadline and there’s also risk that the time pressure might lead to tradeoffs (leave out a certain feature or asset, run fewer tests, etc.) which could hurt your reputation since the public will be getting its first impressions of your company based on that initial launch.
  • It publicly commits you to a particular product even if you learn that your initial idea is wrong or needs tweaking.
  • It tips off the market and potential competition earlier since you likely are doing this at a point before your product is ready and need to provide a fair amount of detail to get supporters.

In the end this “capital” ends up being a very real “liability”, and is a big part of why serious hardware startups that do crowdfunding almost all go back to the traditional VC/Angel community – it is simply not practical to scale up a meaningful hardware business on crowdfunded capital alone.

That said, there are definitely cases where it makes sense for hardware companies to use crowdfunding – and they are cases where the above problems are irrelevant:

  • If your cost of production is tiny relative to the price (think pharmaceuticals, software, music, movie, etc. – trivial cost of production per unit sold)
  • If you’ve already completed the vast majority of development or managed to get capital from another source and are simply using crowdfunding to either gauge customer interest or raise publicity
  • If your intention is to raise money from a VC/angel using a crowdfunding success story (that you’re positive you will get) to show that a large market exists for your product
  • You couldn’t raise money from VCs period and have no other choice

In the first case, a very low cost of production means that more dollars raised can actually go into development, irrespective of volume of production and discounts. In the second case, the pre-sale becomes a good thing: a market signal or a heavily publicized pre-sale for a product which is/is almost done. The third is very risky – because I would maintain its nigh impossible to know if a crowdfunding attempt will “go viral” and even if it does, you are still left with the liability of these presales that you need to fulfill. The last is self-explanatory :-).

If you are an aspiring hardware entrepreneur, in almost all cases your best bet will be to go with traditional equity/debt financing first. Obviously, I am in part biased by my current choice of profession but while VCs and angels can be annoying to deal with and raise money from, the lack of the pre-sale liability and their potential for connecting you with potential hires and partners makes them a much better fit.

Got any questions? Disagree? I want to hear from you!

2 Comments

Tomorrow’s Pets.com

petscomToday, it seems perfectly obvious that building an internet business to sell pet food to customers where shipping and logistic costs (let alone advertising costs, etc.) wiped out any chance of profitability was an idea doomed to fail.

But, was it obvious at the time? While some folks will claim they knew all along, the market evidence suggests that most people had no clue: after all, the company raised over $110M in capital from Hummer Winblad, Comcast, Amazon.com, and others. It went on to successfully IPO in 2000 and at one point employed over 300 people. If it was such a terrible idea, it seems that it took quite a while for people to catch on.

This isn’t to specifically pick on Pets.com – quite the opposite: when you work in technology, there is oftentimes so much change and uncertainty around the future that its not obvious that the “emperor has no clothes” until its too late, oftentimes driven by entrepreneurs, career-seekers, and investors willing to pile on to make sure that they “get in on the action before its too late.”

And therein lies a very interesting question: what are the ideas/companies that have generated a ton of traction today which will become “duh, stupid” Pets.com ideas of tomorrow?

Examples of companies that flew high once and “obviously” crashed afterwards (most of the Dot Com bubble companies, many of the Cleantech bubble companies, some prominent consumer internet companies, etc) suggest that ignoring economic realities is a common refrain. Many of the failed Dot Com bubble companies and many of the challenged consumer internet companies relied primarily on drawing eyeballs to their websites/apps without figuring out how to make money enough on them to recoup their costs of marketing & advertising. The cleantech companies, similarly, gambled wrongly on government support and on their ability to make their technologies competitive with conventional systems.

But, the danger of generalizing from this type of thinking is that are plenty of examples of huge companies which succeeded despite bleak economic pictures in the early days. Amazon.com is a particularly noteworthy company that aimed to grow first before worrying about profitability (something it continues to do in a number of new businesses), not generating profit until late 2001, 7 years after founding, and over 4 years after it went public. Considering the company is worth over $100B today, compared with roughly $400M when it went public, it would seem blindly paying attention to the immediate economic picture would’ve cheated you out of a very impressive investment.

The truth is that I don’t have a good answer to this question. Studying what led to the failure of past startup models can be very informative in terms of how to think about other businesses, but the truth is that we aren’t likely to know until it hits us. Who knows, maybe in a few years “Big Data” or “Mobile advertising’ might all be revealed to have been terrible businesses…?

I would love to hear any thoughts on the subject in the comments below.

(image credit – Pets.com sock puppet – RightStartups)

One Comment