[jeremymcanally]

What you've just stated is, essentially, the business equivalent of the lottery. You could almost replace any reference to business terms in your post with "lottery" and have the same amount of truth applied.

The whole point of a "model" is that it's repeatable and definable. "Getting acquired because they fear us" isn't a business model.

[jacquesm]

> "Getting acquired because they fear us" isn't a business model.

No, but it is one of the best reasons to be acquired, far far above 'they acquired the team for the talent, and shut down the project' and 'they acquired us to get our customers (aka buying growth)'.

[jmh42]

I think there is an elephant in the room here. (Sorry if this stings anyone)

The collective We have been led to believe that we must make something original to be great. Don't make another social network, too tough. Don't do what Instagram did, it's too (pick your reason) risky / saturated / lucky / etc.

The thing is, entrepreneurs have no reason not to shoot for the moon, recreate everything. Why do we resist? The big name funds probably won't invest for fear of cannibalizing their current holdings. Think about that next time you hear a VC or read their commentary (or any commentary for that matter).

[nwzpaperman]

Nature and capitalism share a structural characteristic: both require equilibrium or over-production to self-sustain. Any sustained deficit and the organism or economic entity suffers catastrophic failure.

It is absolutely possible to undermine the business model of a company like Facebook by winning a marginal piece of their business away from them.

Economists are so fervently engaged in trying to eliminate cash-flow/economic/business cycles because deficits have non-linear consequences when they manifest.

With that, instagram had only one possible exit strategy to execute and they did.

[SandB0x]

I have tried to understand what you have written. Help me out here.

> Nature and capitalism share a structural characteristic: both require equilibrium or over-production to self-sustain. Any sustained deficit and the organism or economic entity suffers catastrophic failure.

What does this actually mean in the context of this discussion? What does this have to do with anything?

> It is absolutely possible to undermine the business model of a company like Facebook by winning a marginal piece of their business away from them.

Nobody is denying that Instagram were a threat to Facebook. What people are saying are that the chances of becoming a threat are incredibly small and very much based on luck. There were many other well-executed apps that did not achieve the same success. That, and combined with the absence of a genuine business model, is why people mention the similarity to a lottery ticket.

> Economists are so fervently engaged in trying to eliminate cash-flow/economic/business cycles because deficits have non-linear consequences when they manifest.

Please explain to me what this means. What does it mean for a deficit to have a non-linear consequence?

[nwzpaperman]

"What does this have to do with anything?"

It means building a site like instagram, with zero revenue, can be very profitable if it competes with a revenue-generating site like Facebook. It is also repeatable.

Re: Lottery Ticket

Survivorship bias is not the same thing as playing the lottery even if the statistical probability of success launching a start-up or winning the lottery was identical. Instagram successfully built the technology, acquired the user base and sold to someone who found them valuable.

I don't think luck has anything to do with building a company. Bad luck is how losers explain their losses rather than learning from the loss.

Re: Non-linear consequence

You borrow $1,000 and service is $10/mo. The basic loan covenants would define a default if you can't pay all $10 in any single month according to schedule. That means $9.99 service of the debt gives the creditor legal capability to seize the entire collateral--business.

Fixed operating expenses can be viewed like debt service in that the economic entity breaksdown when all expenses can't be covered.

If the profit margin goes to zero, a company is still running, but extremely vulnerable to random economic volatility.