📈 The negative-unit-economics growth playbook dies with free capital

“It all depends on whether you can reign it back in or not. ... I think if 50 entrepreneurs try that trick, 49 are going to auger in.”

“And you tweeted last week, and I noticed it because Jason and I may have a little something on the line here, you know, with respect to Uber for the first time you tweeted after their quarterly earnings, maybe we're starting to see network effects show up at Uber. ... I mean, Lips said on their call that they were going to continue subsidizing. In fact, they're going to increase their coupons.”

“For a decade, what that money did was it made those businesses what we call the consumer surplus. ... You're getting subsidized rides, you're getting subsidized food delivery, you're getting some subsidized form of content. And there are these consumer surplus businesses that abound right now, that still exist”

“And the problem in that model is that by giving you so much money, capital becomes your primary asset as a business. And capital needs to be the fuel that enables your assets as a business to accelerate. But as soon as capital itself becomes your primary asset, the business is doomed to fail.”

“And when you then have a downturn and capital is not so available, you have to build your business in a much more capital efficient way. And you can't create fake businesses where you're buying growth that's not economically justified, where you've got negative unit economics around the growth. So I think that this downturn is going to create a shakeout.”

“Free capital hurt good companies from being great companies. They hired too many people. Their margins were too low. You know, SoftBank funding all of these rideshare companies around the world to compete with Uber meant that Uber, even though they were a market leader, did not have market leadership economics. And so the ringing out of the system of that excess, that grift, that stupidity, that's going to be good for the fundamentals of these business. But the transition from, you know, that low rate environment to the high rate of our it's dislocating for investors. It's dislocating for management at these companies. And it's going to be this. This is not, you know, a six month phenomenon. We're going to have two years of ringing out, right?”

“And at this point, you should have enough scale that you should be able to earn. And if you cannot, the market will punish you for it. And that's certainly what seems to be the incentive and the pressure on the buy side to the executives across all these organizations today.”

“I just don't see anybody rewarding hyper growth that is burning a ton of cash where you have to be back in market every year”

“And then Uber, I put in my second. They need to do another riff. They need to cut some expenses, but they too are hitting the free cash flow and the network effects.”