TL;DR
The venture capital industry prioritizes scaling over profitability, a bias amplified by public market money, leaving many startups chasing growth without viable business models.
Vinod Khosla recently tweeted that every business should put scaling ahead of profitability. The author suspects the old man spoke in anger and mixed up cash flow with profit — but the real problem is that this view has long been the norm in venture capital.
Not every company is meant to get big
The author maps companies into eight archetypes: 'lightning in a bottle' firms like early Google that grew while earning; 'Field of Dreams' firms like Amazon's first fifteen years, which burned capital on the promise that profits would come; and 'Big and Broken' cases like WeWork, where scaling only made a flawed model more disastrous. Most small firms should stay in their niche and build a healthy business; imitating giants to chase scale can kill a viable little operation.
The venture capital game has flawed rules
VCs' business model forces them to chase big winners: lose on nine out of ten bets, and one hundred-bagger covers it all. So their KPI is not building a sustainable business; it is inflating valuations and exiting fast. Capital floods in, and startups happily comply — sell a story of hypergrowth, hype the valuation, worry about profits later.
The trouble is that public market money now joins the party, letting companies defer profitability even longer. IPOs arrive older, bigger in revenue, yet increasingly unprofitable. As the author says, a scale story can carry a hundred-billion-dollar valuation, but it cannot carry a company that can finally sustain itself.
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