Scaling without revenue makes sense if you're in an industry with strong network externalities or large economies of scale. In those cases, expensive customer acquisition is okay because customers have a very high lifetime value.
During the "unicorn boom", I think we all had this belief that network externalities were very common in tech - a belief driven by the rise of facebook, google, and others. But now we're realizing that maybe strong network externalities are just as rare in tech as they are in other industries - and a business without network effects that's losing money for growth is just a business that loses a lot of money.
Great points. I would add that during the "unicorn boom", we also had the belief that proprietary tech would protect the market position of a large, low-profit companies, giving them time to monetize.
It now seems that we may have overvalued this effect. In fact, startups can grow quickly because new tech makes the first mover advantage tenuous; why should the effect that allowed us to climb the mountain now prevent others from doing the same?
So how common have network externalities that affect revenue turned out to be?
The classic Metcalfe's law stuff means that a messaging service or marketplace with more people is more attractive to users than one with fewer, but not that those users will spend significantly more money or time on it. Certainly not linearly more.
How does the number of Uber cars in a city affect the frequency with which passengers use them?
And how many network externalities are there that don't rest on advertising dollars?
Estimated revenue for the future. It's really tough, but even using revenue for a start up is very tough. Your growth rate is essentially estimating future revenue.
During the "unicorn boom", I think we all had this belief that network externalities were very common in tech - a belief driven by the rise of facebook, google, and others. But now we're realizing that maybe strong network externalities are just as rare in tech as they are in other industries - and a business without network effects that's losing money for growth is just a business that loses a lot of money.
This NYT article from last week seemed to do a good job summing up the issue: http://www.nytimes.com/2016/02/13/business/dealbook/the-rise...