Unit Economics
Commentators are looking hard for what’s wrong with startups in Silicon Valley. First they talked about valuations being too high. Then they talked about valuations not really meaning anything. Then they talked about companies staying private too long. Then they talked about burn rates.If interested here's his latest, Apr. 10:
But something does feel off, though it’s been hard to precisely identify.
I think the answer is unit economics. One of the jokes that came out of the 2000 bubble was “we lose a little money on every customer, but we make it up on volume”. This was then out of fashion for a long time as Google and Facebook hit their stride.
There are now more businesses than I ever remember before that struggle to explain how their unit economics are ever going to make sense. It usually requires an explanation on the order of infinite retention (“yes, our sales and marketing costs are really high and our annual profit margins per user are thin, but we’re going to keep the customer forever”), a massive reduction in costs (“we’re going to replace all our human labor with robots”), a claim that eventually the company can stop buying users (“we acquire users for more than they’re worth for now just to get the flywheel spinning”), or something even less plausible.
This is particularly common in startups that don’t pass the Peter Thiel monopoly test—these startups seem to have to spend every available dollar on user acquisition, and if they raise prices, customers defect to a similar service.
Most great companies historically have had good unit economics soon after they began monetizing, even if the company as a whole lost money for a long period of time.
Silicon Valley has always been willing to invest in money-losing companies that may eventually make lots of money. That’s great. I have never seen Silicon Valley so willing to invest in companies that have well-understood financials showing they will probably always lose money. Low-margin businesses have never been more fashionable here than they are right now....MORE
I think I am at least somewhat more productive than average, and people sometimes ask me for productivity tips. So I decided to just write them all down in one place.
Compound growth gets discussed as a financial concept, but it works in careers as well, and it is magic. A small productivity gain, compounded over 50 years, is worth a lot. So it’s worth figuring out how to optimize productivity. If you get 10% more done and 1% better every day compared to someone else, the compounded difference is massive....
