There was a great article in the Times this past week about the end of the Millennial Lifestyle Subsides, and let’s be honest, Gen Z, X, and Boomers have benefited as well. These “subsidies” came from VC companies bankrolling start-ups allowing them to offer obscenely low prices on goods and services in exchange for market share and traction. However, now the Ubers, ClassPasses, DoorDashes of the world are all having to deal with the challenges of what it takes to be profitable – and their customers are having to deal with the reality of what that means for them.
No matter how many times people try to reinvent the wheel – you just can’t. At the end of the day, a company has to be profitable to stay in business. It isn’t rocket science. For it to work, you need more money coming in the door than going out. It’s really that simple.
But some people do a hell of a job of complicating it. VCs awash in cash and desperate to spend it, have fueled the majority of the irrational business practices we have seen in recent years. Dump billions into a company with the hope of gaining market share by lowballing the competition or simply spending them out of existence. And, in some cases that has worked – until now.
At the end of the day, VC companies, and all investors for that matter, want to see an actual return on their investments. However, they have done a pretty shitty job of ensuring that will happen. Often, by believing a pipe dream pitched by some charismatic charlatan that they have the next unicorn. You can’t invest more to start a company than what that company will ever earn. It’s fine to dig a hole to build a foundation. All companies take some investment, but when you dig a hole so deep you can never get out – you are screwed. Just look at the correction in the stock prices of some of the companies that have recently gone public (in a bull market) and you can see that profitability matters on the open market. Wall Street will only buy into the bullshit for so long.
I have loved having my $24 UBER rides to LaGuardia and my Munchery lunch delivered to my office for $10 a day – but I knew that was never going to be sustainable. However, some kids grew up knowing nothing else, and now that their favorite companies actually need to make money, they are getting a tough lesson in capitalism. We have enjoyed a champagne lifestyle on beer money for a long time now. But the decade of perks, bonuses, and discounts is ending as the era of profitability sets in – and for some people, it’s going to be a hell of a bumpy ride. Fasten your seatbelt.
Let’s do this.
-Shaun