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by SandB0x
4795 days ago
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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? |
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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.