Hacker News new | comments | show | ask | jobs | submit login

Tt doesn't sound like that was the issue here. They had a functional business model, as they have specifically said that their user revenues outpaced their customer acquisition and service costs. They had positive customer lifetime value. The issue was that they couldn't acquire enough customers to pay their overhead.

It's actually a case where "growth hacking" would have been good for them because they needed more users to justify their fixed costs.




> It's actually a case where "growth hacking" would have been good for them because they needed more users to justify their fixed costs.

Here's the current crux of the startup world cost structure - it's not variable based on business solution, but rather technical solution - and this is problematic. Here's the general group-thought - the more money we put into a company the quicker it can sustain growth.

Let's say (none of this following data is accurate, just giving an example) it costs $20k to run the servers for Pinterest (which can make $5 per user on advertising) and it costs the same $20k to run Everpix (which is a freemium service, that makes on average $1.50 per user). As long as profit margins are sustainable both companies can survive. The problem is, no tech startup today I know of really assesses their cost structure today because "its cheap". We get the "scale as we grow" cost structures of providers and just assume that economies of scale mean that the more users we get the cheaper it gets. However, it's often is the case that the things that don't scale (humans and human costs) are not entirely sustainable and nearly as predictable.

Very generally speaking, I believe this means a few things:

1) One business model will tend to outweigh others (today this is advertising)

2) Shovel sellers are the more sustainable winners here.[1]

3) I think we'll slowly start to see a re-shift to offshore development as the ecosystem of "get code out the door technologies" (Rails, Node, PaaS-plays, etc) become much more mature in other markets (as it happened during the first .com burst).

One of my favorite Drucker quotes resonates well:

"For the problem of any business is not the maximization of profit but the achievement of sufficient profit to cover the risks of economic activity and thus to avoid loss."

[1]-http://startupsunplugged.com/startup-data/selling-shovels-in...




Guidelines | FAQ | Support | API | Security | Lists | Bookmarklet | DMCA | Apply to YC | Contact

Search: