> I guess I also wanna say that I'm sorry Cloudflare. I realize that I'm not the target market. I am literally not giving Cloudflare any money. There is no reason they should support an esoteric and bizarre configuration that I do.
This guy is underestimating just how exactly the target market for such a free tier service he is. He is smart, technical, about to go to college, and in a few years will be evaluating what service to use for his startup or big tech job from among a field of competitors.
If you've raised VC and are not bleeding money you've either done something really, really wrong or something really, really right. You're supposed to be bleeding money. That's the whole reason you gave up a chunk of your company. The only reason not to be bleeding money is because you locked into such a strong growth loop halfway into spending that VC money that you literally can't buy inputs fast enough. You're pulling 100% of the world's XY or Z.
It's bizarre that the majority of people on a tech entrepreneurs' forum don't seem to understand this. If you take hundreds of millions in VC funding and immediately make healthy profits, then congrats you just gave away a large chunk of your company for nothing. The smart move is to instead pay your employees, give away your services for cheap and grow your customer base. There's no point having a long runway if you don't use it to build up speed but rather try and take off too early and crash.
> It's bizarre that the majority of people on a tech entrepreneurs' forum don't seem to understand this
Agree.
> The smart move is to instead pay your employees [...] and grow your customer base
Agree.
> give away your services for cheap
Disagree. Giving away your services for cheap is great way to build unsustainable business. It's often a part of the effective strategy, sure. But if you just default into "oh, we'll just sell it cheaply, and increase prices when we're big", then be sure to time your exit, before everything collapses. Selling $1 for 90 cents works only for a limited time.
> Selling $1 for 90 cents works only for a limited time.
That's the point with VC money, for some markets. By burning the entire market for everyone else, you can then own it. At smaller scales and for some products this sucks because VC money distorts the market for otherwise perfectly/better designed products but that don't have the same monetization possibility.
I believe it's one reason so much VC money pouring into web3 now. They aren't about to let an actual decentralized vision take hold.
I think your parent comment's view is that these go hand in hand. Sure, there are tons of bad examples of this which really do only amount to selling $1 for 90c. Sometimes, however, the point of customer acquisition isn't just so that you can switch from selling $1 for 90c to selling 90c for $1 (which won't work), but to solve your scaling problems before you try making a profit. It's easier to fix issues and deploy new or experimental technologies in a period of easy money and customers flooding your doors than it is when you're skating by on thin margins.
> It's easier to fix issues and deploy new or experimental technologies in a period of easy money and customers flooding your doors than it is when you're skating by on thin margins.
But this describes to me the "sell $1 for $.90" strategy, not the other way around. IOW I think it's an argument for why selling cheaply is often not a good idea.
And wrt the parts of your grandparent's comment you quoted, it's not really accurate to call it "growing your customer base" when you're growing it via giving away unreasonably cheap services. It is often the case that the majority of customers acquired in such a way won't stick around when prices are later increased to a realistic level.
This is why in general I advocate for businesses to price well, not cheaply, and to try to get real growth - that is, people willing to pay the money your services are actually worth. There are times where "acquire new customers at all costs, even by giving unrealistically good bargains" is the optimal strategy, but I think it should be something done 10% of the time rather than the 95% of the time it's done in our industry.
Nowadays HN is far different from its roots of being a founder hangout. By far the biggest audience are tech workers who don’t have or even want entrepreneurship experience.
"roots as a founder hangout"?? The roots of HN are techies, geeks and nerds trying to crack the entrepreneur code, not "growth hackers" and entrepreneurs already in the VC ecosystem.
I suppose the charitable take is to infer that they have other data points to support that conclusion, they just didn’t feel it was necessary to make that explicit.
What do VCs have to do with it? Cloudflare has been publicly traded for over two years; one of the basic success metrics for a public company is whether it turns a profit (or is capable of one, absent an overarching R&D investment scheme like Amazon's).
I truly don't understand what holding a share in a non-dividend company really gives you. Yes, it has perceived value and that company may not be profitable, but shouldn't the end game be to provide some sort of dividend to people who own part of the company?
I see the value in it as a speculative asset: if you think that the company will pay significant dividends in the future (or you expect that others will value it in the future for that or other reasons), then it makes sense as an investment.
That being said, I think there's a healthy ratio between speculative and dividend-yielding investments, and the market (especially the tech market) is nowhere near that healthy ratio.
The capacity for the company to pay a hypothetical dividend increases as the company generates more free cash flow. So that increases the value.
You are hitting on a correct notion here though, which is that if the market totally went away - ie you held your shares but couldn't sell or buy - and you're an investor who owns .0001% of a megacorp and >50% of the shareholders won't vote to issue a dividend, then the security is worthless to you. Similarly, if the market does still exist but for whatever reason the company is "unfairly" valued extremely low by the market, then having dividends gives you an "anchor" to hold on to - at least your asset is giving you a 1% or a 3% or a [insert dividend yield here]% dividend while you wait for the market to value it fairly again - whereas without the dividend you've got nothing.
End game, sure, but who's to say a given company is anywhere near their endgame. Outside observers only have outside observations and aren't privy to internally planning.
I really think this is what Gabe did with Valve. To this day they are a privately owned company. It may not be the best place to work, but I do know they get paid well.
I still think it's a fair question. Not every company bleeding money on purpose is going to be able to transition into making money. There's a fair amount of risk in assuming everything will be fine later when you start charging realistic prices for your product/service.
Don't some people take VC as a way to get a sudden large influx of cash to the founders. That is, if my company is profitable and making okay money, but not enough for me to afford some nice toys now, don't some people take VC so they give up equity now for money now? Knowing that the money may turn out to have a 100,000% interest rate?
I think VCs will be disappointed or worse if they learn this was the main plan.
(Of course FU money is another thing and something many VCs approve of. Edit: since it seems to me this is a rather uncommon term these days it refers to giving the founder the initial investment and then a healthy amount extra in payout so their decisions won't be clouded anymore with the fact that they wan't "their" money back. At least that is the theory.)
Oh, sorry. I didn't mean as an exit plan. I was thinking of the FU money concept. I think there's a similar benefit (from the VC's POV) to some a bit of lifestyle inflation and the ability for the founders to have enough cash to use cash to solve personal problems instead of spending their time.
I'm thinking "toys" was a bad word. I'm thinking getting a reliable Tesla as a means of personal transportation, not a yacht.
This is called "taking some off the table" and there is a place for it, but it is usually a small part of a bigger push to get the company to rocketing growth.
But, Cloudflare is a public company now. Not that it matters much except I don't see why "vc money" talk is even relevant in this case. I hope they're executing on a different playbook these days.
Genuinely don't understand what exactly people think you take money for. If it's debt and you don't spend it, you're better off paying off the loan. If it's equity and you don't spend it, you're better off keeping the company. What else do you take money for except to spend it?
This isn't even an entrepreneur/VC/tech thing. You can get there from first principles without intelligence.
Obviously there's a subtlety to it wrt timing etc., but the point of the money is to use the money for some thing.
Operating Income (Loss): GAAP loss from operations was $41.1 million, or 21.2% of total revenue, compared to $24.7 million, or 19.6% of total revenue, in the fourth quarter of 2020.
They certainly can, at most they just use their richly valued stock to raise some more money. Most of the GAAP loss is stock based compensation anyway, not directly spending money.
You know Amazon wasn't profitable as well right? These things take more time than people would like to admit. The whole point of investing is finding those gems you believe in. Cloudflare is one of mine. The physical infrastructure they have in place, their network expertise and their consistent ability to try new things make me think they will either be bought or move to be an extremely profitable company in the future.
This guy is underestimating just how exactly the target market for such a free tier service he is. He is smart, technical, about to go to college, and in a few years will be evaluating what service to use for his startup or big tech job from among a field of competitors.