Funny how every single 'right' thing they did benefits the early owners only and no one who buys the company stock thereafter. Successful companies are seldom built on the principle of maximizing value for yourself while handing lemons down to the next person foolish enough to invest in your company.

I completely agree; I think a lot of startups these days are built on the same principles. Uber comes to mind, specifically. I think the name of the game there is to get to an exit before the regulators really start to get involved, because those will only eat away cash/value. The same applies to AirBnB (again, only in my opinion). So in general, these types of startups are really just sprinting to an exit, growing insanely fast to benefit the early people: founders and investors. Once it's public, they've cashed in their stock, so it's up to the new guard to figure out how to turn the growth company into a successful, long-term company.

> I think the name of the game there is to get to an exit before the regulators really start to get involved, because those will only eat away cash/value.

Ostensibly, the multi-decade vision for Uber is that it becomes not just a taxi substitute but the operator of all the transportation in the future, as people abandon cars in the US and as motorized transportation reaches more of the third world, eventually culminating with them having a good chunk of the ownership in the driverless-car market... and that's where the value will come from, not just the disruption of the entrenched taxi interests (which is only adequately lucrative, and, as you mentioned, riskier). And regulatory diversity at least ensures that there will be somewhere that they should be capable of proving out a model with which to tempt the rest of the world.

Realistic or not, I tend to think that the management buys into that kool-aid.

Uber I can see working in the long run. For taxis, they are disrupting artificial monopolies that have been created by cities.

Airbnb, that one is a bit murkier. There is something to be said for people wanting better value for money, and being able to rent a nice apt for the price of a small hotel room surely is a good thing. Even if you would add some sort of hotel tax to that, I'd say it's still superior value to a traditional hotel.

That really depends on your definition of success. Is it going to build a lasting sustainable corporation that will benefit humanity through long term research and development? Unlikely. Did it do well for its employees and initial investors? A very emphatic yes. In a world where we accept limited purpose prototypes and one-off solutions to get things done in the software and process worlds, why can't we we accept it from a business?

> Funny how every single 'right' thing they did benefits the early owners only and no one who buys the company stock thereafter.

Hypothetically, there's not really any reason to put scare quotes around the word right: At its core, every company is a vehicle for delivering value to its current owners. Future owners are not current owners, and the only defense mechanism they have is good old-fashioned caveat emptor.

In a well-functioning system, that would be sufficient: Few companies would follow the "pump and dump" scheme because it would be so difficult to pull one over on prudent, skeptical investors that approach would rarely meet success. I think, though, that we are not seeing a well-functioning system. We're finding a system where companies inevitably flow toward less and less savvy investors, until eventually you've got half your family members talking about how they're thinking about getting in on the Facebook IPO based on nothing more than that they keep hearing in the news that it's selling for a lot of money.

Incidentially, I was terminally amused by all the news articles talking about the "failure" of the Facebook IPO. On the contrary, if I were one of Facebook's pre-IPO owners I think I'd have been laughing all the way to the bank. Only in what passes for popular financial news could someone do the equivalent of characterizing a masterfully executed Poker bluff as a woeful failure without being rightfully dismissed as someone who's terminally clueless about the rules of the game.

It's a little unfair to call it "pump and dump" which is a specific kind of unethical stock play. The points you made show how Groupon was a creature of the venture model, and executed well:

No barriers to entry, so you have to exploit first mover advantage as quickly as possible: Check.

Audience and advertiser numbers are more important than anything else: Check.

Executing on these points is worth any risk, and never mind the cost or the plausibility of the P&L projections of throwing as many salespeople at the problem as it takes to be dominant: Check.

Groupon executed on what turned out not to be a viable model with total focus. Nobody remembers who the 3rd-27th players in their market were, and their investors lost most if not all of their money.

Serious question: how is that different from a Ponzi scheme?

Structurally, they have nothing in common.

In a Ponzi scheme, you've got only one central figure playing everyone off. Classically, there's no underlying assets under it, it all exists on paper. The schemer promises everyone that they're getting great returns (on paper), and use new investors' money to cover the withdrawals of others in order to maintain the illusion. As soon as the rate of money coming in exceeds the rate of going out, the whole thing crumples and everyone loses everything.

Good old-fashioned finding-the-greater-fool doesn't involve any of that. Everyone involves gets to keep all their money. This includes the greatest fool, too. Admittedly this poor soul has since found out that the thing they bought isn't worth what they thought it was worth, but still has exactly what they paid for.

Yeah, a Ponzi scheme requires lying about past and current performance, not just making super-rosy predictions about the future.

The lie is "I did X very well, and that's where this money came from."

> Good old-fashioned finding-the-greater-fool doesn't involve any of that. Everyone involves gets to keep all their money. This includes the greatest fool, too. Admittedly this poor soul has since found out that the thing they bought isn't worth what they thought it was worth, but still has exactly what they paid for.

Then why is Groupon 1/4 it's post-IPO price, and how are the people who bought then not screwed over?

Whoop, I got that backward - it's as soon as the rate of money going out exceeds the rate coming in.

I think this is a great example of why that list of "right" things is not a good list.

Focusing on growing insanely fast, with high usage numbers and a relentless focus on where the next source of funding is coming from is not the way to build a sustainable business.

If an entrepreneur's goal is just to get rich via exit, regardless of the viability of what he leaves behind, it's at best cynical, and at worst is deceiving public investors.

> * If an entrepreneur's goal is just to get rich via exit, regardless of the viability of what he leaves behind *

That's the Silicon Valley business model.