"It’s not hard to generate massive revenue’s with a really bad business model. One case study is Groupon and how, at one point, they were spending almost 80% of revenues on marketing."
I've found the amount of marketing spend required to sustain revenue to be a contrarian indicator.
While "if you build it they will come" doesn't work in a pure sense (in most cases), if you have a good product and business model it should "take off" on its own at some point after you've primed the pump. It should not require you to constantly ram it down the market's throat to sustain revenue. If revenue has no "buoyancy" without marketing pushing on it, that's an indicator of something that people maybe don't really want/need that much.
For example: if Apple ceased all of their marketing spend I would expect a small revenue dip and a dip in growth but not a huge one. Their revenues would not crash and burn. That's because people like them and tell their friends and that would sustain some level of growth even without marketing spend.
Ben Horowitz is an authority on management and I bet a17z investments get as much focus on sustainability and fundamentals as anyone.
I recommend his blog http://www.bhorowitz.com/, and there's a book based on it too. It's a level headed management blog with far less future gazing than you'd expect.
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[ 2.8 ms ] story [ 16.0 ms ] threadI've found the amount of marketing spend required to sustain revenue to be a contrarian indicator.
While "if you build it they will come" doesn't work in a pure sense (in most cases), if you have a good product and business model it should "take off" on its own at some point after you've primed the pump. It should not require you to constantly ram it down the market's throat to sustain revenue. If revenue has no "buoyancy" without marketing pushing on it, that's an indicator of something that people maybe don't really want/need that much.
For example: if Apple ceased all of their marketing spend I would expect a small revenue dip and a dip in growth but not a huge one. Their revenues would not crash and burn. That's because people like them and tell their friends and that would sustain some level of growth even without marketing spend.
Ben Horowitz is an authority on management and I bet a17z investments get as much focus on sustainability and fundamentals as anyone.
I recommend his blog http://www.bhorowitz.com/, and there's a book based on it too. It's a level headed management blog with far less future gazing than you'd expect.