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The Gross Margin Problem - Bottom Up by David Sacks

sacks.substack.com · 1,163 words · saved by 2 readers

The topic du jour in tech right now is the sudden reappraisal of some high-flying startups based on unit economics / gross margins (e.g. WeWork, Uber, Lyft, DoorDash, Postmates, etc). How did we get here? The truth is that software startups never had to worry about gross margins until software started eating the world. Gross margins only became a concern once software blended with physical-world products and services to create new tech-enabled business models. Historically, pure software businesses had perfect gross margins. All the major expense was in creating the first copy; subsequent copies were virtually free. The realization that he could sell cheap mass-market software and make it up in volume made Bill Gates the richest man in the world. When software moved to the cloud, this dynamic didn’t change. Almost all of the production cost is in creating the product for the first user. Aside from hosting, it is almost free (on an incremental basis) to provision additional users. If an

The Gross Margin Problem Lessons for Tech-Enabled Startups David Sacks Oct 28, 2019 40 5 Share The topic du jour in tech right now is the sudden reappraisal of some high-flying startups based on unit economics / gross margins (e.g. WeWork, Uber, Lyft, DoorDash, Postmates, etc). How did we get here? The truth is that software startups never had to worry about gross margins until software started eating the world. Gross margins only became a concern once software blended with physical-world products and services to create new tech-enabled business models. Historically, pure software businesses h

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