[aetimmes]

> Right before the recent Twitter acquisition, the various bits of info that came to the limelight included the "minor detail" that they had more than doubled their headcount and associated expenses, but had not doubled either their revenue or profits.

Every tech company massively inflated their headcount during the leadup to the Twitter acquisition because money was free.

I interviewed at Meta in 2021 and asked an EM what he would do if given a magic wand to fix one problem at the company. His response: "I would instantly hire 10,000 more engineers."

Elon famously did the opposite and now revenue is down 80%.

[bumby]

>"I would instantly hire 10,000 more engineers."

From my experience, this answer usually belies someone who doesn’t fully understand the system and problems of the business. The easy answer when overwhelmed is “we need more people.” To use a manufacturing analogy, you can cover up a lot of quality issues with increased throughout, but it makes for an awfully inefficient system.

[chgs]

Twitter revive collapsed because of politics and the public removal of moderators, not be side of how many engineers were employed.

[jiggawatts]

Money was not "free".

Borrowing costs went to nearly zero. That's not the same thing. You have to repay the money, you just don't have to repay it with interest.

I would have assumed people generally know this, but everybody (and I do mean everybody) talks like they don't know this. I would like to assume that "money is free" is just a shorthand, buuuut... again... these arguments! People like that EM talk like it was literally free money raining from the sky that could be spent (gone!) without it ever having to be repaid.

If you watched any of the long-form interviews Musk gave immediately after the acquisition, he made the point that if he hadn't bailed out Twitter, it had maybe 3 months of runway left before imploding.

Doubling headcount without a clear vision of how that would double revenues is madness. It is doubly so in orgs like Twitter or Netflix where their IT was already over-complicated.

It's too difficult for me to clearly and succinctly explain all the myriad ways in which a sudden inrush of noobs -- outnumbering the old guard -- can royally screw up something that is already at the edge of human capability due to complexity. There is just no way in which it would help matters. I could list the fundamental problems with that notion for hours.

[otterley]

Companies weren’t issuing debt to pay for headcount. The reason market interest rates matter is that when interest rates are low, your company stock doesn’t have to have high returns to get investment. When these conditions exist, companies feel safer hiring people to invest in growth instead of saving to provide high shareholder returns.

I highly recommend everyone take a university-level financial instruments course. The math isn’t super hard, and it does a very good job of explaining how rational investors behave.

[jiggawatts]

So you’re saying the investors are happy to see their money set on fire?

Surely they expect at a minimum that their capital investment would make them dividends (increased revenue), and also that the money wasn’t simply set on fire with nothing to show for it and no way to repay it.

If I’m wrong then Twitter - and similar companies - are little better than Ponzi schemes, with investors relying on the money of the greater fool to recover their money.

[otterley]

> So you’re saying the investors are happy to see their money set on fire?

Ah, HN, where you try to explain how things work, and you get ignorant sarcasm in return.

> Surely they expect at a minimum that their capital investment would make them dividends (increased revenue), and also that the money wasn’t simply set on fire with nothing to show for it and no way to repay it.

Yes, of course. But when safe investments (e.g., Treasuries) are paying out close to zero, investors are going to tolerate lower returns than they do when Treasuries are paying out 3% or more.

It's basic arithmetic: you take the guaranteed rate, add a risk premium, and that's what investors expect from riskier investments. This is well-covered in the class I recommended.

Also, not every investor thinks in terms of consistent return. A pensioner may have a need for a guaranteed 3% annual return to keep pace with inflation. A VC, on the other hand, is often content to have zero returns for years followed by a 100x payout through an IPO.

[throwaway7ahgb]

People here don't understand basic concepts like risk adjusted returns, flight to quality, Searching for yield etc...

[jiggawatts]

> A VC, on the other hand, is often content to have zero returns for years followed by a 100x payout through an IPO

I know how all this works, but 100x payout is for the small initial investments, not after 10 years of operating at multi-billion-dollar scales.

Small amounts of money are set on fire all of the time, chasing this kind of high-risk return.

Nonetheless, there's an expectation of a return, even if only in aggregate across many small startups.

What I was observing (from the outside, at a distance) was that Twitter was still being run by a startup despite being in an effectively monopoly position already and a "mature" company. Similarly, Amazon could set money on fire while they were the growing underdog. If they doubled their headcount today without doubling either revenue or profits, the idiots responsible for that would be summarily fired.

I get that Silicon Valley and their startup culture does a few things in an unusual way, but that doesn't make US dollars not be US dollars and magically turn into monopoly money that rains from the sky just because interest rates are low.