Feb

7

 One thing that is striking to me is that many of the online businesses that appear to be bubbles would be incredibly great small/medium sized businesses if the founders and people involved were not dead set on hitting a grand slam home run via market capitalization.

On one hand, the massive valuations stimulate investment in new technology, which is good.

On the other hand, selling stock to investors with a grand scheme to dominate the world could make hundreds or billions while running some of these sites as "small businesses" might still pull in high 7 or 8 figures of real economic profit from customers, without the public scrutiny or "cashing out".

The bubble pops when all the spending to make the "world beater" can't help a niche become something it never really could become. So the company becomes a vehicle to satiate speculative desires, which founders and advisers can take advantage of.

I wonder if on net that home run mentality helps or hurts. I'm inclined to think it adds a pyramid scheme element to enterprise that is not necessary. On the other hand, it does fund research and allow little ideas and little companies to compete with the bigs.

Chris Cooper writes: 

In my experience, it is not just money that motivates founders to swing for the fences. It turns out that there are a whole new set of challenges and things to learn with each order-of-magnitude increase in revenues/size. If one happens to find oneself in a high-growth, high-potential situation, one quickly realizes that it may be a once-in-a-lifetime occurrence. It can become one's chance to gain new experience and knowledge, to learn how to manage an organization as it grows, and many other things that most people never have a chance to attempt. It sometimes leads to failure, but that's part of the experience, too.

Knowing that probably doesn't change very much the way it looks on the outside, but to attribute "a grand scheme to dominate the world" to purely monetary motivations is not an accurate picture of what is really in the heads of many founders.


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  1. Ed on February 7, 2014 7:44 pm

    The “grand scheme” I was referring to is often the creation of IB pitchbooks, not the founder’s vision. The issue is they can cash out more stock than they could ever make in actually operating the business, so financially turning the business into a massive punt is a win win financial situation. While this is not always the motivation, just follow the money you see that it often, very often is.

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