Re:Who Pays the Price for Selling $10 Bills for $5?
by treis on Friday April 05, 2019 @10:00AM
(#19582541)
>The traditional VC backed tech startup growth curve is an exercise in giving something away for less than it's worth, such as selling a $10 bill for $5.
This gets it fundamentally wrong. Only Moviepass was in the business of selling $10 for $5. Most of what appears to be $10 for $5 can be broken down into two things:
(1) Software is a very high fixed cost and very low marginal cost business. If you spend a million to develop a piece of software your profit is going to look like crap for your first few customers, better for the next bunch, and so on until you are wildly profitable (or so you hope).
(2) Discounting recurring revenue. Spending $10 to get $5 in revenue is stupid. Spending $10 to get a customer who will give you $5 in revenue every year is smart. If you only look at year 1 the smart move looks stupid.
This gets it fundamentally wrong. Only Moviepass was in the business of selling $10 for $5. Most of what appears to be $10 for $5 can be broken down into two things:
(1) Software is a very high fixed cost and very low marginal cost business. If you spend a million to develop a piece of software your profit is going to look like crap for your first few customers, better for the next bunch, and so on until you are wildly profitable (or so you hope).
(2) Discounting recurring revenue. Spending $10 to get $5 in revenue is stupid. Spending $10 to get a customer who will give you $5 in revenue every year is smart. If you only look at year 1 the smart move looks stupid.