I've been musing on this for a long time and wanted to get some of the big brains on the business board thoughts. I am uneasy at the extent that vc and investors promote and sustain unprofitable business models to stay in the market and continue to cause havoc,
I own a manufacturing business and have been both a beneficiary and victim of these kind of practices, and have had a great seat on watching how they distort the market. Without getting too specific, an investment capital backed company made a gigantic splash in our industry offering very short delivery times with transparent pricing to the end-user at a fraction of what a normal distribution company would charge.
The benefit to the end-user and to us was massive; we had a customer who scarfed up a ton of marketshare due to their delivery promise and their low mark-up who was flush with cash, placing huge orders and paying 30 days on the dot. The aggression came at a cost though as the company went from zero employees to 250 almost overnight, opened up branches in 11 states and a few different countries and lost millions and millions of dollars per month. It has been a huge net benefit for us, but I've heard a lot of doom and gloom from my distributors who are unable to compete with these guys due to them being small businesses without a pool of investment capital behind them and able to run more or less indefinitely at a loss. They've asked me point blank "how do I compete with a company that charges a flat 7% mark-up when delivery costs are 10-15%?" I don't have a good answer for them.
The situation kind of reminds me a little bit of WeWork, an extremely unprofitable company who wrecked Regus and the other "rent an office" places by under-cutting competition with unsustainable well under breakeven pricing, a cult of personality and some window dressing.
I own a manufacturing business and have been both a beneficiary and victim of these kind of practices, and have had a great seat on watching how they distort the market. Without getting too specific, an investment capital backed company made a gigantic splash in our industry offering very short delivery times with transparent pricing to the end-user at a fraction of what a normal distribution company would charge.
The benefit to the end-user and to us was massive; we had a customer who scarfed up a ton of marketshare due to their delivery promise and their low mark-up who was flush with cash, placing huge orders and paying 30 days on the dot. The aggression came at a cost though as the company went from zero employees to 250 almost overnight, opened up branches in 11 states and a few different countries and lost millions and millions of dollars per month. It has been a huge net benefit for us, but I've heard a lot of doom and gloom from my distributors who are unable to compete with these guys due to them being small businesses without a pool of investment capital behind them and able to run more or less indefinitely at a loss. They've asked me point blank "how do I compete with a company that charges a flat 7% mark-up when delivery costs are 10-15%?" I don't have a good answer for them.
The situation kind of reminds me a little bit of WeWork, an extremely unprofitable company who wrecked Regus and the other "rent an office" places by under-cutting competition with unsustainable well under breakeven pricing, a cult of personality and some window dressing.