An outline of recent startup history
2010–17: Spend money wisely
2017-22: Spend money foolishly
*** Beep
A generation of entrepreneurs that “burned money smart” was the story of 2010–17. The internet affected every category of consumer and business spending.
This led to a few chances to define certain categories, such as transportation, food, banking, communication, and other utilities.
Low entry barriers combined with enormous profits from monopolization came at a heavy price.
Read: 10 Crucial Lessons from BIG TECH
Growth at all Costs
People believe that category-defining businesses like Uber simply burn money to increase sales. They didn’t; instead, they succeeded by offering the proper incentives to support network effects.
Consider Uber, which reduces ETAs to under 5 minutes by rewarding drivers in a small, dense area, as opposed to Lyft, which offers wide geographic coverage but has subpar ETAs.
Although they both spent the same amount on advertising, one company dominated the market. They had to spend money, but they wisely spent it to dominate a few key areas in the era of the internet.
Read: Layoffs in Tech to continue in 2023
When things got out of hand
The degrading attitude of “burning money dumb” was the theme of 2017–22. People with skills in markets that “burn money smart” have been seen moving to industries with a much lower product-market fit, like scooters, where they use the same money-burning strategies to terrible effect.
People with skills in markets that “burn money smart” have been seen moving to industries with a much lower product-market fit, like scooters, where they use the same money-burning strategies to terrible effect.
We saw venture capitalists (VCs) put a lot of money into businesses (like clubhouses and cryptocurrencies) where money didn’t give them a competitive edge.
Companies that developed into mono- or oligopolies grew significantly in the early 2010s as they lost control (think Meta, Twitter), reducing product innovation and raising prices.
Read: In business, its ALL OUT WAR.
Free money is no longer available
so that age is coming to an end. The “lean, build smart” movement is poised for another recession-driven rebirth. It is now plainly obvious that lean teams may produce excellent results.
Before network effects and virality occur in Consumer Social, monetizable stable states are reached. This was demonstrated in the 2010s by Instagram (13 FTE when sold) and WhatsApp (55 FTE when sold), and Gas (4 FTE, top of the App Store) is demonstrating it once again in 2022.
Debt financing can be a practical substitute for guaranteed revenues in SaaS, where lean but mighty teams can produce amazing products and go profitable quickly.
