Mega-rounds, burning bright

Lean technology companies improve free-market user experiences.

Without the mission that yields value to users, any digital asset instantly becomes a digital expense.

Tech-enabled mega-funded companies are typically unable to even meet the definition of a digital asset because they often use the Internet as an effective promotional mechanism for a fee-driven product. WeWork, for example, is a real estate lessor, a well-promoted one. Compass is a real estate broker, like any other. These services have never built sustainable digital products that work to improve markets around them. Instead, such propositions have built resource-heavy products that may or may not be even needed.

As of today, leading into vulnerable economy of 2020, locked into unsustainable revenue, mega-funded and tech-enabled products for X are a trail of unrecoverable investments, a.k.a. sunk costs, that have little to do with operations as technology companies.

If a technology company lets go of their mission, only then, it fails, it will be left with nothing to improve. Technology companies are built on a vision.

On the other hand, if a tech-enabled company burns their mega-rounds with an unsustainable dependency on cash, it fails for a very different reason.

Other than antitrust enforcement, or lack thereof, nothing breaks an excellent technology company with a clear mission. Excellent technology companies never buy things that we cannot sell. We never lose money. Inevitably, we help disrupt all mega-rounds poised against us with use of lean innovation.

Tech-enabled companies powered by mega-rounds, such as WeWork, were always operating on a fuse. The question is why? Simple, really. A bad revenue from a raked experience is a tempting mistress. Yes, it is revenue, but it comes with a hidden cost.

For example, iBuyers can turn a massive advertising machine of the Big Five channels into low success products that consistently overcharge consumers in a few thousand real estate transactions each year, raking massive revenue from each home sale. The product is flawed, the experience is flawed, the revenue is flawed, but mega-rounds help to cover it to seem like a sustainable and well-built service. The problem is, no iBuyer produces or improves a digital asset, or truly places the required effort to improve a user experience. To an iBuyer, costs of operations govern everything, making bad revenue an inescapable reality. iBuyers have no incentive to fix their ultra-low 2% success rate of their products because any such action will raise operating costs even further. Instead, today we find iBuyers systematically sell 98% of failed instant offer requests to random brokers for a cut of their commissions.

Scooter rental companies saw “rapid” growth in visitor-friendly cities, leading to an illusion of mass adoption. When taking aside costs of operations, the case for e-scooter rental success can be made. Alas, the costs of operations increase drastically with scale and become the primary enemy of such boots on the ground products. If the demand was truly there, and the revenue was truly scalable, much smaller companies would have grown into it organically. Local services are better delivered locally.

Uber Technologies is another mega-funded experience that was built on a major flaw — price-fixing third-party contractors. As the company struggles to reach profitability, it has yet to meet the ultimate consequences of breaching the Sherman Act. What could have been an amazing product, if it allowed independent drivers to set rates independently from the start, is now forever destined to fight countless legal claims. Eventually, the mega-funded “gig economy” will fail due to this massive and unsolvable legal liability. Open Marketplaces offering similar experiences will become a massive opportunity to rebuild such foolishly lost ground. All bad revenue carries within itself a modus of self-disruption.

When built organically to promote free-market user experiences, costs of operations and risks for lean technology companies are much better controlled with massive growth. Companies such as Google, Facebook, Apple, Microsoft, and Amazon are all built on lean innovation. For such businesses, antitrust action is never fatal. Amazon Home Services and TurnKey Realogy products, for example, operate by price-fixing services of local home professionals and real estate agents, but, unlike Uber Technologies, the take rake on these price-fixed services is a mere fraction of Amazon’s primary revenue. Microsoft, for example, despite a full-blown antitrust action in 2001, is still very much alive and well.

In times of uncertainty, it is important to seek lean innovation as the primary go-to-market strategy. After all, today, mega-rounds are burning and burning bright. This is a good thing, not only it helps lean technology companies succeed, but the lack of poorly-placed capital will work to expose poor user experiences that hijack digital spaces with well-placed ads for their poorly-built products.

What the hand, dare seize the fire?

Author: Litesand

Antitrust, real estate, e-commerce, fintech, proptech, bigtech

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