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Basically what happens is that even if you start to be cash positive, you want to get a bigger company, so you need to scale a lot the sales team and the customer support team, so you spend more money in order to end with more customers, not caring about the short term profitability. This is common to most startups basically.

Btw the Redis Labs development team at this point is quite large, because Redis open source is the core, but the company produces a number of things in order to provide a good managed Redis experience, all the additional features and modules, and so forth. But even so, I think it is accurate to say that most money in most companies of this kind will go to orchestrate the company at a different level, not just R&D.




> even if you start to be cash positive, you want to get a bigger company

I am really interested to hear how you would square this against, say, Bssecamp's modus operandi.

How would you define 'enough'?


The Basecamp model has the risk of some other company doing the same thing by taking venture capital and growing by getting more customers. At some point the economy of scale kicks in and the service get cheaper than Basecamp model.

Basecamp could have been slack, but slack ate their cake.


But Basecamp never aspired to be Slack.

They have successfully resisted the pressure to continually expand.


This is true, and, in some ways admirable.

The problem is that, for a lot of companies, the endgame is continued midsize existence; it’s death when you stop getting new customers and old ones phase out.

The low marginal cost of software doesn’t guarantee winner-take-all markets by any stretch, but it does apply pressure in that direction.


If you took VC money, 'enough' is when you cannot expect to profit from more money put into the company. (something to do with 'NPV' or net-present value, if I'm not mistaken)

And it's not about greed really - you actually have an obligation to shareholders to maximise profit.


> you actually have an obligation to shareholders to maximise profit.

A convenient myth common in the UK and US. There are no laws that require shareholders to be put first.

How many directors have been prosecuted for not maximising profit?


Yes there are no laws but I always wonder about this.

If people are serious about testing this premise, why not be upfront with the investors and actually tell them that "maximizing profit is not one of our (primary) goals"?


It strikes me as daft to pick on only that. Why's it special? Greed?

Why not be upfront with investors and tell them keeping the company viable, developing new products, finding better processes, treating staff acceptably, or maintaining the environment are not primary goals?

So why fixate on profit or shareholder value? Once you act as though it is a prime directive, you necessarily relegate the others. There are going to be a lot of times in the life of a company where growth, longevity, research or a dozen other things should take priority for a time.

By not doing so, and continuing to push the continually increasing dividend, you weaken the company. Weaker and ripe for takeover, or lacking the next generation of products that might give 20 more years of profit. Maybe by showing so much greed in your pricing that your customers give up and go elsewhere.

A long lived, vibrant, profitable company is more than just a growing dividend and share price, it's a constant balancing act of all of the above. Profit is indirectly maximised as a result of that balance.

I found a long, but very interesting discussion of the topic: https://skeptics.stackexchange.com/questions/8146/are-u-s-co...

One part is especially worth quoting, from John Kay (a British economist and commentator):

"...and the more shareholder value became a guide to action, the worse the outcome. On the board of the Halifax Building Society, I voted in 1995 for its conversion to a “plc”. We would allow the company to pursue the goal of maximising its value untrammelled by outmoded concepts of mutuality: in barely a decade, almost every last penny of that value was destroyed."

Longevity would have been a better priority in that moment, no?


If you take someone's money, you only have a duty to fulfill your promises. Plenty of for-profit companies exist partially for some social good, or exist to further some multifaceted goals. If you can convince someone to invest in those types of goals, nothing is stopping you.


> And it's not about greed really - you actually have an obligation to shareholders to maximise profit.

That's just formalized greed.


> And it's not about greed really - you actually have an obligation to shareholders to maximise profit.

Not an obligation, but an incentive, as preached by Michael C. Jensen and William H. Meckling in their widely-cited 1976 paper: Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, and in a follow-up HBR article.

https://en.wikipedia.org/wiki/Michael_C._Jensen#Research


To maximize value for the VC, not profit.

In some cases value can be very different than profit, depending on your investors :

- They may want your project to have a positive impact on the local community

- They might only want to have business that are sustainable

- Maybe they care a lot about men/women equality

- Maybe they want to generate recurring revenues

- Or they are looking for short term sale

The question is: are those objectives aligned with what you want to do, or not. Most issues arise when there is a delta there.


These are very academic definition/logic.

Reality is more nuanced. You don't, for example, really know how much profit you'll make from taking more or less investment. It comes down to strategic foresight and belief.. IE not the most reliable guess. IE, a lot depends on the personality and goals of the CEO.

In practical terms, the macro amount of money investors are trying to put in can play a much bigger role than comparing unknown futures. If investors are having trouble investing all the money they want to, the proposition gets more pleasant for the recipient. Less equity, and (more importantly irl, if not formally financial logic) better terms, less loss of control, more choice of investors.

The "fiduciary duty" that obligates companies to make money is also over somewhat academic. IRL, this doesn't really cover strategic decisions. It covers stealing, nepotism, bed-feathering and other blatant shareholder abuse. You could never prosecute a CEO for passing on investment irl.

TLDR: academics formalize these decisions in a clean, whiteboard model of the world. In the whiteboard rule, where the complexity of reality doesn't exist, choices don't really exist either. The CEO just evaluates the npv of taking investment, providing free lunch or launching a new product and the decision is made.




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