QUESTION #2: MARCH 27, 2020
Many companies in the dot-com era (like Pets.com) suffered from losing money with each sale in the hopes of making a profit in the future. Was this a smart business plan for these new companies? Is that a risk that you would take if you started an online business?
This is a terrible business plan. If you aren't making money know how do you know you could make money in the future. Especially with how substantial the losses of pets.com were. I would never make that risk because it is completely unsustainable and offers way more harm than chance of success.
ReplyDeleteTwitter was founded in 2006. It didn't make a profit until February 2018. However, investors stuck with it because they believed it would eventually turn a profit.
DeleteYeah I think there's a point at which you have to give up this business plan, but it's not a bad idea to lose money at the start while trying to form connections, market, advertise, and build up your brand for the future.
DeleteI completely agree. And for the most part, it wasn't like they were waiting or expecting things to change in a certain way. They had no other plans to profit! So if the main source of profit is producing NONE, you can't expect that to change so drastically that you'll end up making money
DeleteWhile I understand where these companies were coming from in spending for the future, I would never do it. It is a bad business decision in my opinion, and guarantees absolutely nothing. While market share is important, so are profits, and creating a business people hope for instead of love is not good.
ReplyDeleteI see your point on how it guarantees absolutely nothing. Companies may lose money now to gain later, with no actual promise that they will gain this money back in the future.
DeleteYeah it's definitely a bad business plan because market share does not equal profits, as weve seen time and time again
DeleteThat is interesting because a big aspect of business is the risk factor. Companies that do not take risks often can miss out on opportunities. But too large of a risk can be the end for a company. It is a give and take situation.
DeleteI think it might have been a good plan at first because it often takes a while for new companies to finally see profits but after a while, losing money with each sale could put your company in debt and that's not a risk I would be willing to take from the get-go.
ReplyDeleteThat makes sense. In the beginning, a small amount of debt to get off the ground is natural, but it wasn't good that these companies only increased this debt into the future, as their business plans.
DeleteThis was a smart idea to begin with, to see if your future sales are going up and your money is increasing. However, if the market starts to decline, it would be wise for companies to stop losing money on each purchase. I believe that if companies did not lose money in each sale, their profit in the future would still increase, based on their amounts of products and customers.
ReplyDeleteI agree that this could be a better plan for the beginning stage of the company. If the market starts to decline after this initial phase, it obviously would not be a good decision to continue with this strategy.
DeleteI don't believe it is a smart idea. Especially the dot com market. Companies could grow just as fast as they could collapse. By putting a company on such a fragile foundation to begin with just sets them up for failure.
DeleteThis is a risk I would be willing to take if there was evidence that the online business would eventually make money. However, I don't feel that basing this decision on hope alone is sufficient, as companies could end up losing a significant amount of money.
ReplyDeleteYour comment is more in line with current reality. Like I said in my response to Aakash, Twitter was founded in 2006 but didn't make a profit until 2/18. Investors stuck with it because they believed the company would eventually be profitable.
DeleteI think that this worked out for early companies because they were super new and the general public was also invested in them. When the consumer started getting overwhelmed with so many new websites, it's hard to draw their attention. Now I wouldn't take the risk but I think that back then I might have.
ReplyDeleteI agree with this. I think this plan was more effective for companies with big, original, and useful products or ideas that would be popular among the public for the first time.
DeleteI don't think it was a good plan. If you're losing on every sale, how do you expect to make money? And they weren't losing a couple cents, they were losing, if not more than, most of the the money they would have received from a sale. I think it's too big of a risk, and I wouldn't go for it.
ReplyDeleteYou're totally right. The amount of money lost was so immense that it makes you wonder how so many companies took this risk. I agree with you and definitely would not have risked it either.
DeleteI think it is only a smart business plan if you become successful in the future. However, if you use this strategy and never profit in the future, then it is not a smart business plan because you just lose money. I would never use this plan because of the probability of never making profit.
ReplyDeleteIn this time, smart business plans were hard to have because there wasn't much to go off of. It was a business move that could've gone over well but it was also a risk. I think this risk is something I would do in the beginning in order to get loyal customers who wouldn't mind a price increase.
ReplyDeleteHow long do you think you would be willing to take that risk before bailing out?
DeleteSometime before every one of my investors is broke and out of a home. Eventually it will have to end.
DeleteI think Hayden is tenacious and would hold on until their business was profitable no mater how long that took.
DeleteI don't think it was a smart business plan because even as their advertisements were all over TV, they still seemed to be losing more than gaining. I think they have either raised their prices to make a profit or just sold the company. At least that way someone would have made a profit. I think I would take that risk in the beginning when my online business first started but if that trend continued I would change up my plan.
ReplyDeleteanabell-yeah i agree i dont think they thought it through all the way
DeleteI do not think this was a smart business plan because many companies like pets.com and Webvan suffered immensely and this was their downfall. While this worked well for a select few companies, I think the crash in the early 2000's shows that this was not a good choice for others. I personally would not take this risk, but then again that may have meant that my company wouldn't have succeeded.
ReplyDeleteI agree with you that it depended on the company. For some, it payed off in the end. But for others, there's no way it ever would have worked because they were losing most of what they were making
DeleteWhile the appeal factor was there, the long run affects were not beneficial. I think that suffering with a loss of money was a very nearsighted plan. While a lot of companies like eToys, Webvan, and pets.com all went from extreme lows to extreme highs in profit, it was never sustainable, which is what damaged new companies the most. If I had an online business I would keep in mind that not everything will be profitable, and it will swing from highs to lows, but I would keep watch of how much money I am losing and if it would be worth the risk.
ReplyDeleteit was not smart! i don't see how a business losing money at a constant rate could help them at all in the long run. and they valued high but in reality they werent making ANY money. i dont get it
ReplyDelete^anabell
DeleteThe idea was that if they could grow big fast they'd eventually make money. The problem back then was that there were too many companies functioning on that model and too few consumers willing to shop online at the time. (One of the questions you guys submitted that's coming up was a really good one and addresses this "before it's time" syndrome.)
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