Finally! Investors Want Profits Not Just Growth!

The WeWork debacle has served as a wake-up call to VCs and other investors. Charismatic founders, ersatz-tech startups, easy to copy apps and ridiculous claims of disruption are now major red flags.

“All of these goodies will be disappearing very soon — from my phone, from your phone and from the overall economy.”

Caille Millner, Editorial Board, SF Chronicle

And I must admit, somewhat ashamedly, that I am experiencing just a teensy bit of schadenfreude to see the most nonsensical (and scammy) of these startups finally getting their comeuppance.

Here’s a small sample of the most egregious players besides WeWork (of which enough has been written)
  • Scooter companies, which I loathe, are losing millions of dollars. Micro mobility is nonsense and starting a business not realizing that your product, the scooter, would go bust before you can make one dime is lunacy. Lime is on track to lose $300 million this year and Bird lost $100 million just in 1Q19. I’m somewhat optimistic there will soon be fewer scooters littering the sidewalks around the country.
  • Grubhub is in a death fight with every other delivery company but most especially with Uber Eats. However, all of them are either losing money or making pennies per delivery. I love my Seamless but this does not bode well.

The Grubhub/Uber fight is like getting “locked in a cage with a psychopath with an axe.”

Jim Chanos, Investor
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More Startup Misses
  • Subscription box businesses: They were booming a few years ago but fatigue has set in. It was a stupid idea, to begin with – being sent a box of “curated” whatever every month is beyond useless and wasteful on top of it. Buy your own snacks, dog food or outfits and stop polluting the environment with all that packaging and shipping.
  • Meal Kit Delivery Services: I never understood why people would sign up for a service like Blue Apron. It’s expensive, incredibly wasteful, and leaves you stuck with all these kits piling up if anything unexpected or spontaneous happens to your schedule.
  • PLUS, make sure you read Virginia Heffernan’s Wired article from 10/22/19. It is spot-on. She also includes Marc Andreessen’s 2007 missive, “The only thing that matters” from his Guide to Startups blog. It’s very helpful to revisit the thinking of the time. It certainly helps to clarify how we got to the mess we’re in today!
Bottom Line.

Not all startups are failures, of course, e.g., I’m a big fan of Blinkist, Venmo, and Grammarly (although the latter can stand serious improvement). But more startups than not are built on the flimsiest of premises and have absolutely no market potential.

Instead of being sustainable businesses, the majority of startups are “pop-up” ideas at best, i.e., flavor-of-the-month, not true disruptors and certainly not worthy of unicorn status!

Going forward, as profits take a front seat to growth and hype (hopefully!), questions about the real cost of any new product or service will be addressed early on, e.g., as fabulous as the Uber app might be, if the car costs three or four times as much as we’re used to paying, we will quickly lose interest. Same for delivery services.

Frugalista that I am, I will even give up online shopping at Walmart or Amazon if I have to pay for delivery (and I know right now that’s being heavily subsidized).

So we will see how this all plays out but from my perspective, dotcom bust 2.0 is in the offing.

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