If you can bootstrap your business with 30k and make a 20k profit every month, then why do you need 1 million dollars from investors?
When you take the money, it's just a golden handcuff and ties you to that person for the future. If your business lasts longer than 20 years, that may as well be an additional marriage with kids.
You can build all your imaginary arguments about magical businesses that make 20k profit per month while being self-sustained with holocracy, cruelty free, authentic, organic etc. etc. But the reality is that doing big things at bigger scale requires huge capital. If you are willing to pass up on it, someone else will take it and gladly outspend / outmaneuver your. You will watch as your paid product will lose to a freemium one, and as you will write "our incredible journey blogpost", commenters here will mock you for selling out / giving up.
* Big companies start small. VCs will tell startups to find something their tech can make them the best at and grow into nearby verticals.
* Software goes to zero. Academia, side projects, whatever. Either you keep up, and reach some sort of scale that you have a moat, or your risk goes up.
The downside is the parties aren’t as good :(
Care to comment on the work/life balance you have?
I can say it took me a long time to get to where I am now and I had quite a few detours along the way. I wrote up the history of my business a while back if anyone is interested [1]. Bootstrapping is certainly not the way to instant riches :)
1. https://www.tillett.info/2015/06/24/why-i-kept-my-startup-in...
Not enough angels but lots of devils..
If an entrepreneur is worried about "Work Life Balance", I think he/she is in the wrong business.
But I don't know! I truly wonder how many businesses have been run into the ground because of a kamikaze attitude to working hours. But I also wonder how many businesses missed gigantic opportunities while the founders were off doing unimportant things like putting their kids to bed. Neither are measurable, as far as I can see.
If anyone has any stats on this, any at all, consider me recommended!
Stats don't even matter, because at that level of financial independence, it's a personal choice whether you spend time with your family or pursue another business opportunity.
There's always a limit on how much time you can spend per day, and this limit is far below the time you are awake. Push it too far, and you do not only lose your working power, but also your motivation and your inspiration.
I agree entrepreneurs can get burnt out, but at that point it's become a "job" and is probably time to move on.
there are limits to stress your body can sustain, and your mind can be totally disconnected with it, pushing and pushing.
The assumption is not only incorrect, but I believe it is exactly reverse: Losing passing is one of the consequences of a burn-out. It is not a cause, but instead one of the (most visible) symptoms.
If your only business advantage over your competitors is a willingness to sacrifice your life for money, then you'd better either be okay with doing so indefinitely or be making enough money you can call it quits before you're too old to maintain that pace.
For founders, and really anyone heavily invested in early stage startups or companies looking for a lot of growth, responsibilities are 24/7 and the line between work and life get blurry, and it's a lot more difficult to make sure the balance is there, but also a lot more important.
Not disagreeing or anything your comment just brought this to mind.
or a specialized market
Size is not necessarily a function of the word niche it only implies that the good or service being sold targets a group that is not a majority of all of the market participants. In twitters case 3.4B users on the internet, with only some subgroup that participates on social media and then only a subgroup of that group that wishes to participate with limited post length and then, business wise, just the business niche that have a large customer base within that subgroup of internet/social media/short form.
As an example BMW is a niche business, luxury auto, that had 92B in revenue last year.
Even that One Big New Thing they announced, namely Moments, still operated exclusively in that short messaging pubsub niche entirely (and turned out not to be something their users cared about that much so far).
Now their niche market seems kind of saturated, user numbers mostly peaked, and Facebook also started competing even more in that niche when they introduced searchable #hashtags and ways to follow accounts without becoming mutual friends, while still offering their other core features and "external" services like instagram (in direct competition to twitter) or whatsapp (in direct competition to twitter DMs). Tumblr is still there, which to me always felt mostly like a "twitter" for longer-form messages. I saw people switch from twitter to Slack (and recently Discord) and embrace their not-globally-visible pubsub models in some cases, so there is some competition there too.
So in conclusion: twitter seems to me like a pretty niche service (albeit large niche), and has competitors left and right now. It isn't in "that" niche, but in a niche.
Of course Twitter as a business did not have this choice - they had to go big or go home. For the founders though it might have been better to have built something else.
I doubt it. All of the founders are mega wealthy now both as a result of Twitter and other ventures. Twitter might not have reached the dizzy heights they aspired to, but like it or loathe it Twitter is a household name and the founders are "famous".
Where? In US, SV, New York, China, Ukraine, Argentina? If you growth it can be difficult to scale without having higher profits or outside investments.
Because maybe that holds for B2B businesses where no-one outside of the industry knows you exist, but for any B2C startup the reality is that there are a ton of people with connections and stupid money (or pre-funded teams looking to "pivot") that will throw lots of resources into competing with you. These teams tend towards self-delusion (over-estimating market size, pretending that it is a world-changing product, imagining it as a stepping-stone to world domination) because this is necessary for them to raise capital.
Lots of people romanticise lifestyle businesses, but it is miserable competing against funded businesses when your competitors have free money. I have done it twice and one of the worst feelings you can have as a founder is when you've spent a year building a business and your customers start complaining because your service is more expensive than your funded competition. It is psychologically taxing.
Only partly.
I mean, yes if you get competition you have to get a huge amount of money from somewhere, but the later you do it, the more money you get for much lesser 'cruel' VC wishes.
I am sure the VC and growth path can be good for some, but if you think this is the only realistic way to make decent money, you drink too much the VC kool-aid.
Slack hasn't put them out of business yet.
I wasn't aware about the details with the pricing of Basecamp. I just knew it changed recently and that it wasn't freemium. The point I was making with that still stands.
Having said that, the number of bootstrapped / angel-funded companies sitting there cheerfully producing a large-enough-to-be-useful profit for years on end is pretty huge. Others have given examples in other replies to this comment, but I just wanted to point out - they're not outliers, they're a trend.
The claim that the model doesn't work is rather easily falsified.
Or, who funds the freemium one? Investors who push that company too far too fast, so your paid model could outlast another flash in the pan.
If the VC model did not work it would have simply gone out of business. The reality of business is that doing things at larger scale requires capital. Sure you might be able to pull-off your lifestyle, but its going to be hard to motivate employees when the VC funded competitor gives them michelin star chefs, 50% higher salaries and a shot at windfall in few years. Sure twitter might be laying off few employees now. But before that it made its founders billionaires and several employees millionaires.
I'm part of that successful bootstrapped crowd (way more than $20k/mo profit). I'm not a billionaire but my lifestyle is pretty amazing. Bootstrapping is a legitimate way to grow a real business.
Without ever earning a penny in profit for its shareholders. What a system!
It has, on a macro scale, three times now. On a micro scale, it does every day, but there is always some new money who is sure they can get it right this time.
In practice, this says that all the bets on hypergrowth were wrong, and the company must adapt: The stock grants that looked competitive before don't look competitive today, so top engineers leave. Staffing plans designed to keep a system operable at 10x of Twitter's current volume stop making sense, so projects change, and people are laid off.
So this has nothing to do with liability to promises (they've already IPO'd), but with the pain of becoming a less promising company. Twitter is too important to disappear in the near term; all you have to do is look at how big they are for journalists and presidential candidates to figure that out. There is, however, an opportunity for someone to make a competing product that fits the same needs and is easier to monetize.
That presumes that you think new management could successfully grow the company. Twitter's growth might be done.
However, if the majority of your shareholders are members of the public looking to earn a return, they're your boss. You might be CEO, but if your priorities aren't their priorities, they'll replace you. Even if you own the majority voting control in the company, there's a certain amount of good-faith effort you need to put into growing the profits of the company. In most jurisdictions, a public for-profit company is organized with the belief that the company exists to create as much profit as it reasonably can and shouldn't be operating in a way that avoids that. That doesn't mean doing scummy things or things that might realize short-term profits at the expense of the brand, but sometimes it becomes clear that a company is no longer operating with its (potentially minority) shareholders in mind.
There's actually a type of corporation that specifically notes that maximizing profit isn't the goal of the enterprise (https://en.wikipedia.org/wiki/Benefit_corporation). Twitter could have been formed as a B-Corporation and told its investors that it might make profit, but that profit wasn't its only goal.
But the thing is that Twitter isn't just making too little money. It's losing money. It would be like a coffeeshop that sold coffee for 10¢ a cup with 50,000 customers/mo and rent of $8,000/mo. They'd bring in $5,000 from their customers and be $3,000 in the hole at the end of the month. Now, there are a few ways to change that situation. 1) Get more money per customer. Twitter could sell more or better ads or you could give them money. That's hard. 2) Get more users. If Twitter earns $X/user/month in revenue and they're able to get double the number of users, that's double the revenue. If costs don't go up linearly with users, their situation will get better. If the coffeeshop gets 100,000 customers/mo, they'd be making $2,000/mo. 3) Twitter can lower costs. They can fire excess employees working on marginal projects; they can get rid of app features that might be computationally expensive to deliver.
The issue with many startups isn't always growth or investors, but even keeping one's head above water.
Now, even if Twitter can keep its head above water, is that enough? If Twitter became a non-profit and just advertised itself as a public service to the world, would that be enough to keep users around? So many companies are gunning to take down Twitter. Would Twitter survive if it slimmed down its staff and just kept Twitter alive? Would users migrate to other services that offered new, cool things?
I feel like Wikipedia is the only really high-traffic non-profit, but they're doing something that requires a lot less engineering (ie. most of the page can be easily cached and is the same for all users vs. Twitter).
The thing is that it's hard to bootstrap services with huge network effects like Facebook or Twitter and keep a small staff. It's often a winner-take-all (or most) market. Remember Pownce? Probably not. There were lots of microblogging companies and Twitter destroyed them all. To do that, they needed to staff-up as you handle scaling issues and add features. Once you're big, you want to keep focusing on growth since layoffs are demoralizing and if you stop growing, what's to stop a new company from coming along and knocking you off?
It's easy to think that Twitter could be run with less of an eye for growth or profit, but given that it's losing money right now and that can't continue forever, it at least needs to get to a head-above-water place. The most promising ways of getting there are things like getting more users, cutting costs like staff, and figuring out how to get more revenue per current user. In fact, one could argue that the layoffs are part of Twitter not prizing growth above all else. They're trading growth (that could be driven by those employees) for cost (the salaries of those employees). Twitter is going the route of the less-growth, slimmed-down company looking to just keep chugging along. But even then, Twitter needs to get its head above water and this is kinda part of that (unfortunately).
I feel like Wikipedia is the only really high-traffic non-profit, but they're doing something that requires a lot less engineering (ie. most of the page can be easily cached and is the same for all users vs. Twitter).
WhatsApp comes to mind as an example of complex engineering (storing and delivering messages for millions) and they pulled it off with a small team at first. And more: once the core product is established/engineered, do you need as many people to maintain it?
It's not a complex engineering problem at all. Maybe it could be if it were done in the year 2000. It is not nowadays.
[Granted, there is still work to be done to make a decent product, they had great people and they executed very well.]
Just think about the infrastructure for example. There was no SoftLayer/AWS to save your ass. You had to handle servers/hardware on your own. That alone could use a (small) company.
(Story covers lawsuit against Twitter for misleading shareholders on user growth numbers).
[1] http://www.bloomberg.com/news/articles/2016-09-17/twitter-su...
Their main responsibility at this point is to satisfy the shareholders, and given their limited growth is not an easy feat.
In many ways VC funding is the worst and shouldn't be applied to most companies.
I'm not sure either are a good outcome from a bad idea.
I'll also put my other question in this post seeing as I have tripped the HN rentier alerts by using words that may upset our parasitic rentier VC gods, leading to the weasel "you're submitting too fast" after one post.
What is patio-11 ?
As far as twitter, they unfortunately took a bite of "poison apple" of public investment, and as such are beholden to investors, so must perform (and grow) to ever more higher levels. What would happen - i wonder - if twitter became private again, or better yet some sort of non-profit? What if their platform somehow became the genesis of the new, decentralized web somehow...In other words "phoenix" their way out of this mess by literally -reinventing themselves...If by "reinventing themselves", it might be really more of a major tweak to their operation mode. If twitter - the protocol - as opposed to twitter - the ad/communication platform - reinvented itself in that way, i think i might consider going back and using it; that is, if I'm able to retain control of my own content. Until then, I'll stick with matrix.org (specifically riot.im).
John Hempton summed up this view well: http://brontecapital.blogspot.com/2016/10/some-comment-on-tw...
The short answer? Because they don't make money.
I guess it's possible you could grow your company to a point where you say "Okay, we've filled our niche. Growing more doesn't make sense, so we'll just extract as much cash as we can."
The problem is you have to make money to do that. Twitter doesn't make money and never has. They can say "Well, we're still growing, and that costs money, but at some point we'll monetize that growth and make tons of money," but it's only credible as long as they're growing.
Scenario time...
Let's say I have a company that is growing pretty well. After some time, I feel the easy growth stops. Let's say this is the "right size" point you are alluding to, and I was able to recognize it, spot on. I stop hiring and just work with the existing resources that I have. In theory everything should be good for a long time.
Unfortunately, I do not exist in a vacuum. I have competition, and this competition continues to expand. Eventually, if they continue to invest and grow, even past their "right size", they will take away my market share. As they grow stronger, I will grow weaker. This may cause my company to lose enough sales that I will have to fire people.
The fallacy is that there is a "right size" that will continue to be the "right size" through time. A market is a dynamic system that does not stand still. What was the right size at one point, may be too large or too small in the future, due to things beyond my direct control.
As a smart businessman, I have to understand this. I have to expand when there is room, and try to outperform the competition when the market is crowded. I need to downsize when the time is right to protect the rest of the business.
What you are saying is easier done on a smaller scale. There are many so-called "lifestyle" businesses which live by a philosophy that is closer to yours and farther from Twitter's. On a global scale, it much more difficult to follow the "lifestyle" business philosophy and succeed.
Fallacy is here.
So, if its growth has petered out and this is as much money as it can produce, it's understandable to me the line of thinking would then be to cut costs as much as possible so the profit margin can grow. 4k people makes sense when your company is adding value every day, but to these shareholders those aren't translating into results.
My $0.02 -- thoughts?
> Personally I dream of making a living establishing a patio11-type software business. Something where I can do a high quality job and own all of the decision-making.
I have that dream too, but when I have it I always wonder if given that situation I'd be able to stop myself from wanting my baby to keep growing, even if it meant giving up those decision-making abilities and taking on investors.
Dad wouldn't have it. He had run this successful brick and mortar business since 1971 and there was just no way that he was going to trade away ownership for cash to get growth that he didn't want. The stores afforded him amonthly draw that supported him and paid for a nice house and the freedom to pursue his hobbies. He was in his early fifties and all of the tough years taught him to recognize the good thing he had.
It was a great lesson for me and his experience as a businessman is a big part of the reason why I never pursued entrepreneurship myself, opting instead for the stable life of a salaryman.
Your assumption, that Twitter is profitable, is unfortunately wrong.
I actually don't think anybody values the later.
Growth or death is true for most businesses, just need to decide on the growth acceleration
Patrick wrote "year in review" posts going back to 2006, and they include full numbers, so you can see for yourself. Profit margins in 2014 (the most recent review) were at a whopping 60% across all his businesses. (See here: http://www.kalzumeus.com/2014/12/22/kalzumeus-software-year-...)
> closing down
He sold his SaaS businesses, and they are operated by other people. Here's a podcast episode about it: http://www.kalzumeus.com/2016/08/26/kalzumeus-podcast-episod...
They are still in operation, and presumably still profitable:
https://www.appointmentreminder.org/
https://www.bingocardcreator.com/
> Growth or death
Not really. Moving past patio11 as an example, just look at local businesses in your community. The ones that have been there the longest (> 50 years) have undoubtedly gone through periods of both growth and decline (I don't mean decline toward death, I mean decline for a bit and then start growing again). Many of the ones that have been there for about 20 years will have reached a sort of "asymptote" of growth--they would have grown for the first 10 or 15 years and then stabilized around a size that feels "comfortable". There are many more businesses in the world than just start-ups and public companies.
Software built by 1 person will always have good margins. According to his numbers, BCC was making $60k in good years. 60% of that is $36k, which is a fraction of what a solid Dev can make (and an even smaller fraction of what he patio11 was making consulting). Clever side project income for sure, but not a staggering work of business genius.
(let's not forget that, thanks to inflation, 'flat' is actually losing money over time.)
Till the best people get tired of stuff everchanging and breaking, combined with the lack of resources and the 70 hours startup week.
Then they drop the 'dynamic environment' and come back to Big Goompany :D
Yeah, I have no ambition. Yet I can totally take a week off and head to Puerto Rico. Not only does the world not end, but I don't get called with an emergency while I'm hiking through the rainforest to find a swimming hole.
I get to go out every weekend. I go out on Sundays. I go out whenever. I pretty much key in 40 hours and work 35 hours a week (10 a.m. to 5 or 6).
Yeah, maybe I don't get paid above $200,000, but my life is straight out of some Oprah "Live your best life" book. So bite me. I'll take no ambition over that startup life any day.
Because, in a nutshell, the "economy" is a massive ponzi scheme that depends on constant growth. This isn't a popular opinion among many of the VC crowd that believe in the myth of the meritocracy, but its an irrefutable truth. For example, the FED (and other central banks) set a target inflation rate (usually around 2%, but it can vary). That means if you are "stable", and the central bank has its way, you are actually shrinking.
Its obviously much more complex then this, but that is the crux of it. Unfortunately "sustainability", whether economic or environmental, isn't a priority for those .000001% of the oligarchs that run the show and make their money off debt servicing.
Can you recommend any references for a non-economist to learn about this theory?
Also, is this related to why financial markets are so obsessed with profit growth? I always wondered why being profitable wasn't a good enough indicator of success.
This TED talk by professor Franz Hörmann does a good job of explaining.
https://www.youtube.com/watch?v=88ksYFsleto
Simply put, when money is created by the bank for a loan, only the amount for the loan (the principal) is created and given out. The problem is that an extra fee (interest) is charged on top, but the money to pay that fee was never created.
So basically it is an impossible contract to fulfill on a macro scale. A negative sum game.
It's not a theory, it's armchair cynicism.
Some high growth startups are kind of like Ponzi schemes, in the sense that some investors know they won't ever get to the full valuation needed to justify the investment - but that someone down the line, after the IPO will be left 'holding the bag', but the economy itself is not a 'ponzi scheme'.
No, inflation means, in aggregate, the price businesses charge goes up.
http://www.bls.gov/cpi/cpihqaitem.htm
>The CPI is calculated using prices for a fixed basket of goods and services through time. While the basket is periodically revised to reflect changing consumer expenditures, some items being priced in the sample come and go from the marketplace, making collection of these prices from month to month difficult. When an item is no longer available in the marketplace, a similar replacement item is selected. Often there are no similar items from which to choose, and as a result, a less comparable item is selected, potentially introducing quality change and an associated price differential into the index. The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item.
That toilet paper you used to buy costs twice as much? Well the FED says the new toilet paper is of a higher quality, so it is actually counted as being lower priced then the toilet paper you bought for half as much last year.
Quote from FED:
>The hedonic quality adjustment method removes any price differential attributed to a change in quality by adding or subtracting the estimated value of that change from the price of the old item.
What do you think "attributing a change in quality" or subtracting "estimated value" means? If you don't understand how the introduction of these arbitrary variables, invented by a politicized FED, completely nullify any informational value, nobody can explain it to you.
For example - as Farmers improve their technology - Tomatoes become bigger, juicier and redder. Clearly - there is 'economic value' in those 'improved tomatoes' and that has has to be taken into consideration when comparing tomatoes grown before, to tomatoes grown now.
Stop misinforming people, take your conspiracy theories to ZeroHedge.
Maybe cars or something your story works with
But if your current value is based on a huge amount of projected growth, then going to "no growth" will be hugely painful for investors, founders, and employees.
A low / no growth model is only feasible if they don't have investors / shareholders bucking for returns at every decision point. Twitter, has made a deal with the devil in becoming a publicly traded company because at some point needs to show their stakeholders a path to profitability. Job cuts, cutting expenditure whilst hopefully maintaining profits, are a good way to demonstrate this.
If Twitter wants to become a public internet utility, like wikipedia, existing investors will demand something like a share buyback, how will Twitter afford this without a period of profitability?
Finding a sugar daddy to buy them out is one option but the recent sutors probably felt that twitter stock is overvalued, largely because of the lack of profits.
So Twitter has hit a ceiling, they are making adjustments, which sadly are op cuts. If they want to hire more people than can grow their numbers.
Public companies have investors and those investors who have put in capital (money or time) either in the beginning or during operations expect a return on their investment. The company taking the investment keeps selling shares to get more capital getting them stuck on a ROI treadmill.
The only way to escape the ROI treadmill is to self-fund from operations profits and not take outside investments.
Unfortunately many of these startups depend on debt to keep operations going.
https://www.youtube.com/watch?v=bGBoXTaitr0
Worth watching because his words of advice did help me when trying to grow my own business. I didn't reach my numbers, but having a goal gave me a sense of direction, and there was a sense of movement. I think we're only at a loss in business when everything falls still. I'm no expert, but I don't sense that Twitter is falling still just yet, and there's still movement.
As you said: "Why can't Twitter just be happy being Twitter". I can't imagine the web without Twitter and it still feels like some sort of plumbing, or public utility at this stage. Twitter is there like water (hopefully). You turn on the tap, and it's there like water.
Frankly, I think we're going to see a backlash against information overload - social media has lost its novelty, and most consumers need far less of it than the producers want to provide.
Yes this is the analogy to TV where the market provided precisely 3 channels (plus PBS) for decades and a third of the population reliably watched each show on each channel, but that was 1970 and now in 2010s there's 500 cable channels and a wildly success narrowcast might reach as many as 1 in 40 citizens. Usually far less, of course, as little reach as 1 in 300 is possible with aggressive enough advertising budgets. Of course there is the superbowl but its only a couple hours per year and there's only one and that one is already here.
It has certain implications for future startups. It would be doom for current startups that financed assuming they'll be the one site that all 6 billion humans use. If the social media market follows the TV model, in 20 years we'll be back to multiple tribal sized BBSes, more or less, with the occasional temporary cultural fad resulting in short term scaling headaches. For about a month, about a billion of us, will try to simultaneously log into the pokemon go server, then we'll all try to forget it ever happened, which actually is a big enough problem to keep many engineers employed.
I'm not sure the financial markets know what to think of legacy TV right now, much less what will, by then, be legacy social media.
How do you finance or account for a one month pokemon go, times hundreds per year, when thats the new normal not an aberration?
We have many shows because people want different stuff to watch sure.
Why couldn't Reddit be the only BBS of the internet? Everyone in the same website, but live in a unique subreddit.
TV doesn't work like that.
Meanwhile in the Slashdot 90s a weblog discussion type site took a lot of money and an entire corporation to kinda run, but in the 10s a splinter group like Soylent News takes like three part time dudes, if that much, to serve up more than Slashdot ever did in the 90s.
So anything big automatically leads to political problems and 20 years ago, or even today, people just have to tolerate it, but as technology advanced eventually you'll be able to do more than reddit does with a simple $30 model 2025 raspberry pi and a sd card, so people will just move there instead.
Or rephrased the primary network effect of sharing Reddit is the joy of being a victim of raids from SRS, so people will be quite happy to leave.
Also I'd say we have very few TV shows because of expense and the resulting risk aversion. We have many nearly identical shows none worth watching. If the cost of TV shows scaled downward with technology we'd have some pretty interesting diversity of TV shows, but we don't.
> As a result, the behavior VCs generally need to encourage is growth at any cost. If a company burns out trying to become that 100X star in the portfolio, it’s OK. But if they choose to grow slow and steady and build a sustainable but not particularly dominant business over 10–15 years, that’s non-ideal for the portfolio or the fund’s returns.
[1]: https://medium.com/@randfish/what-id-change-keep-the-same-do...
In most cases it probably isn't a huge deal, but the fact that Twitter isn't profitable is likely a (large) factor. Without a given amount of users, it won't be profitable and decreased growth obviously means that profitability is further out. Hence them cutting costs.
There's obviously nothing wrong with a bootstrapped / lifestyle business. The people at Basecamp are big proponents of it. https://www.youtube.com/watch?v=lBfVxBj61z0 Here's one interview out of plenty where they talk about this kind of thing.
I joined Twitter very late, to get news when the Boston marathon bombing was happening, and while the feeling that twitter is a forum that covers the whole internet is still there, it's at late stages.
Most people are well and truly over the idea that twitter is worthwhile in and of itself, and most people are pretty much following as many people as they want to be. It's much more likely that long time users are cutting down on follows than adding new ones.
It still has a culture where you can talk to strangers on the internet, but a pretty big etiquette has grown up around that, and that can also be intimidating coming in late.
That's not to say that a patio11-style business is wrong, just that it's very different. It's personal preference if you've started the business and there's no right or wrong way.
If you din't keep growing and managed to keep the business profitable (hit the ceiling), then you weren't 'innovating' and should be replaced ...
... that's the mindset. I don't agree with it.
At a very high level, one of the arbitrary ways to divide up stocks is into growth stocks, value stocks, and income stocks. You can google those terms if you want a deeper level of understanding i provide, since those are the terms of art used in financial circles.
Growth stocks are stocks for companies that you/investors feel will continue to see increasing profits/revenues/earnings compared to the market.
Value stocks are companies that you/investors feel will are undervalued compared to their fundamentals.
Income stocks are companies that you/investors take for the dividend payments.
Continuing at a super high level (ie these are still generalities with examples to the contrary), growth stocks have higher price to earnings ratios and are valued primarily based on capital appreciation ("i think this stock's price is undervalued compared to its actual value"), which very much depends on how successful someone thinks a company will be, whereas value stocks have low price to earnings ratios and are valued primarily based on expected dividends payments (sidenote: one way for determining the value of a stock is to take the limit of the sum of all expected dividends from now until infinity). Income stocks aren't priced incorrectly the way the other two are and tend to match what investors expect the dividend payments to be (sidenote: all stocks can/do pay dividends, but that's generally not what drives the purchase of value/growth stocks).
Tech companies are almost all growth stocks. People buy them on the expectation that they will execute better than the rest of their competitors and that this will result in a large growth in revenue. Profitability doesn't really matter that much here as long as they have enough money to keep operating, because the expectation is that profitability will come later after revenue increases.
Once the company thinks that a business unit has saturated the market to the point where it can no longer grow revenue beyond the average rate of the market, it will transition to an income stock by focusing on cutting costs and trying to increase profitability as much as possible (since a priori revenue can't really increase in relation to the market).
If a company wants to remain a growth stock it needs to 1) successfully transition business units from growth to income without losing too much revenue (and simultaneously becoming profitable based on expected revenue levels, ie driving down expenses below revenue), and 2) identify new emerging markets where they can create a new business unit that can drive growth. If you do this right, you can fund 2 with 1 and remain a growth stock indefinitely. If you do this wrong, then investors will get angry and force you to pay higher dividends and sell off or shut down the growth parts of your business.
Growth stocks have advantages for (tech) companies due to the focus not being on profitability: Paying employees with RSUs (no one really does options anymore if they're public, but sure, options, too) is attractive to employees because the stock is expected to increase in value and RSUs/options are allocated in constant amounts of stock, not constant amounts of dollars (at an income stock company, stocks aren't as attractive as cold hard cash to employees, because of all the hassle of turning them into cash for essentially no gain, and this lowers profitability for the company compared to paying straight cash due to the way accounting works). Companies can lavish nonstandard and standard benefits on employees to attract top talent without investors batting much of an eye (at an income company it's much tougher to justify super great benefits due to the focus on profitability (why pay a top-tier person if a middle tier-person costs less than revenue loss associated with not going with the best).
After a company is public it's not so much VCs as it it the stockholders in general (of which the VCs are usually still a substantial member). But in general, they'd both say the same thing: either increase revenue substantially (preferred) or gracefully transition to income stock (less preferred). VCs will hang onto the stock as long as they think that it's a good investment for their fund (i don't know when this means they sell it, but it's not necessarily immediately after IPO).
Companies get in trouble when they are having trouble growing revenue. Investors will quickly push for them to transition to an income stock if they lose confidence in the company's ability to continue to grow. This is because in order for the stock price to not drop revenue has to keep increasing or the company has to become profitable enough to justify its stock price when considered as an income stock.
Twitter wants to remain a growth stock, but investors want to see increasing revenue for that. Since twitter can't do that, it's got to focus on increasing profitability by cutting expenses.
I left off value stocks so far. Essentially, if you fuck up the transition from growth to income stock for a business unit or you fuck up identifying new markets to grow into, your stock price will go down accordingly. If people think that this was a mistake that the company can correct and learn from, then they will see the price as undervalued compared to how they think the company will perform. This belief that the market has overreacted is what allows people to consider a certain stock a value stock.
Some companies will actually stop growing and start paying dividends/sharebuybacks for this reason.
Real money was spent on real dreams, and the dreams failed to materialize. To give up on the BIG is to accept that their returns will fall sadly short.
If the stock falls below $10, pretty much any company can swoop in and buy them for a song.
Companies have to report earnings quarterly. Investors expect quarterly growth. If they don't get it they punish the company.
I'm not sure if that is an accounting term but I've seen it used in similar situations to describe how the business model works, or doesn't work.
It goes kind of like this:
Lets say that 1 SRE engineer, 1/4th developer, 1/3rd customer support agent, and 1/10th of a manager can support 10,000 users. (all made up numbers of course for this example). You can't really cut up manager's in 10ths so you really need 10x this to have 10 SRE engineers,4 developers, 3 customer support agents, and 1 manager.
So that is 100,000 users. But the cost of all those people don't bring in enough revenue from those users.
But there is a "scaling" effect, such that if you have twice that many people, instead of 200,000 users you can support 225,000 users. Four times and instead of 450,0000 users you can support 500,000 users. So the trick is to find the point in the model where you have enough users to make enough revenue to pay for all those people, and the hardware that supplies the service. At that point you're "break even", and then if you can push past it, you start generate cash above what you need, or net profit.
The more you can grow, the more net cash you can generate, and the "value" of your company, is typically a function on your earnings before you start paying taxes, and costing depreciation (EBITDA).
A web business like Twitter's (or Facebook's for that matter) then can be valued based on how many users they have and the revenue per thousand user metrics they can drive minus the cost per thousand users.
If you stop growing before your generating net income, you die. So there is a minimum you have to hit. And if you're well managed, you are constantly trying to minimize costs and maximize revenue to get a bigger income factor.
Here is another issue, generally, like with "blade computers" you get the most money by having just enough people and resources to handle all of your load. When you anticipate growth, if you build out more resources and that growth doesn't come, your stuck with the costs. Like having a computing blades chassis with just one blade in it. A really expensive computer. So you back off and lay off those folks you hired to get your costs back under control so you don't lose a ton of money.
Again, a well managed company will attempt to grow without hiring resources right up until they can't grow any further, and then hire. So that when the next tranche of people show up, you are ideally already net positive on income, just not by as large a margin as you used to be.
At the end of the day you're managing costs, user growth, and revenue per user. If you can't juggle all three you run a high risk of becoming an acquisition by someone who can.
Is the answer simply that earlier VCs put pressure on the executives to keep growing so they can multiply their investment?
Personally I dream of making a living establishing a patio11-type software business. Something where I can do a high quality job and own all of the decision-making. The ceiling doesn't have to be very high for one guy to sustain himself, and software is appealing because you can automate away nearly all of the "work".