[jpm_sd]

This is a pretty good article but missed an opportunity to comment in more detail on the 2020 startup/unicorn ecosystem.

"Malone’s entire strategy was built around a single fact: that you have to pay up front for cable systems, but then earn back your money via a stable stream of cash for years and years afterwards. Notice how this extreme demand for capital drove Malone to embrace debt, over other sources of capital. Now notice how closely this resembles the Software as a Service (SaaS) business model, which is the primary business model in today’s startup world."

Gotta spend money to make money. But I wish he had commented further on businesses that do this incorrectly, based on wishful thinking. He talks about the strengths of TCI, with an engineered "loss" that saves them money on taxes, or Amazon, whose decades of "unprofitability" helped them to build a long-term-profitable empire.

But what about Uber or DoorDash? Burning investor cash, chasing long-term revenue that will never come? How on Earth are they keeping this scam going? Why do people believe in it?

[gumby]

This is an important point. For this to work, step 0 is: have a functioning business. That’s what gives you the opportunity to then change the curve on your cash flow.

Another factor is your vendors. The cable business expanded (and expanded into) an existing ecosystem: tv mfrs, film studios etc. The restaurant already had vendors it could afford to lend 300K up front knowing that they would deliver reliably over the next four months. Also an operating business.

Likewise Amazon.

But the Ubers etc start without a viable business. In fact they start by skimming the cream of an existing market. The problem is, you get good at what you do. If you don’t build a viable business it becomes harder and harder to move your company into that mode as the environment changes.

[everythingswan]

Yea, the functioning/viable business piece has a place in this discussion. I can understand why the author wouldn't include it but it serves us here. To take on debt like mentioned, you have to have some confidence in the business model and not be searching for product/market fit like many early-stage companies. If you already have cash flow then you can leverage it.

[SuoDuanDao]

I think it's harder to draw the line as to who's doing it incorrectly than it seems, without the benefit of hindsight.

Give an example from the telecoms world - I had a friend who worked for a telecoms startup, bootstrapping for funding and undercutting the local incumbent by using better technology. The incumbent responded by offering free service for a year to all the startup's customers if they switched back. An unsustainable move but hardly a bad decision - it had very deep pockets, and my friend's employer ran out of money first.

If Uber didn't have any competition, it could raise prices to profitability today. Investors still believe in it because they believe that Uber, like the Telecoms incumbent in my anecdote, can bankrupt the competition and then have its way with the consumer. Investors in Uber's competitors presumably have their own reasons for a similar thesis.

[impostervt]

I forget where I read it, but some article described Uber's business model as "sell a dollar for 80 cents". You get a LOT of customers that way, and report huge growth, which brings in investors, and everything is great - until the pyramid scheme collapses.

[bob33212]

After a "collapse" you are still left with mindshare and a market. If you increase prices by 30% you'll still be the largest player. Maybe later investors are not making returns but you are not going bankrupt.

[toast0]

The thing is, if you have lots of takers for dollars for 80 cents, that doesn't tell you very much about how many takers you'll have for dollars for $1.04.

If you charge too much for food delivery, you won't have very many customers. How much is too much, and does it leave you a profit is the big question.

maybe they can make it work, but probably not in a lot of markets.

[sushisource]

In my experience as demand has increased due to the pandemic, prices are reaching the point where I'm not willing to pay them, and I make good money like most people on this site.

If that's any indication of what's to come when they need to stop bleeding cash... not looking great.

[kgwgk]

I agree for the mindshare, in some cases at least. Pets.com is still in the minds of many of us. And we will still remember MoviePass in 20 years. But, hey, WeWork still exists!

[blackrock]

Isn’t Chewy the new pets.com?

[imtringued]

If there are enough short sighted investors they will create a competitor that follows the same price dumping strategy.

[vasco]

Uber or DoorDash are just extreme examples of the same line of reasoning. You're just moving cash flows not only across time but based on probability. You start by trying to create a business that moves the most cash possible to generate float. Now you might say, that this doesn't work because if you sell $1 for $.80 you'll run out of money. But that's not true, you just have a drag on your timeline that pulls you to zero without further capital inflows, or until you sort out your margins. In a world with very low interest rates (now, and past few years), capital doesn't have many useful places to go. And as we've seen, it has flown a lot into equities and a lot into private funding. That is the inflow of capital that keeps extending Uber and DoorDash's timeline, such that even with a 20% drag, you still have another fool to pull in and keep the party going. If the music stops everyone cries, but if it keeps going long enough, you actually increase your chances of remaining alive. For one you might outlive your competition, but there's many more things that can happen. You can improve your margins (Uber's pipe dream with self driving), you can can have a shift in consumer demands in your favor, or a pandemic that shifts consumer spend super fast, etc. You basically keep growing and extending the timeline and you may get a big pay out.

Or as some would call it, growth investing.

[petra]

DoorDash is interesting.

Sure they don't have subscription like predictability for their revenues. But they have a lot of data, and machine learning, so they may get pretty close in predicting how many people will order steak next month.

And let's say they partner/own a chain of ghost kitchen restaurants who offer a large variety of food(which is a much more competitive business model than restaurants). And that chain can suddenly get steak(and the other stuff), for half the price ?

[mbesto]

> Why do people believe in it?

Amazon FOMO.

Investors are so butt hurt they didn't believe other investors about Amazon's razor thing margins and now its a 1T company.

I think Uber/DD are VERY different though. I don't see the potential either.