Too many of the hottest companies of the 2010s set prices that were unsustainable. Today, we're seeing the results of that trend.
Another example of what I like to call ‘happy now, sad later’, which I think is an unfortunate byproduct of how our brains work. Makes us way too subject to focusing on the short term and neglecting the bigger picture (see smoking and credit cards for two more examples). This isn’t the first time tech-oriented companies have taken unsustainable paths, and sadly, it probably won’t be the last.
I’ve set into practice that when I procure things, after getting the offer from the supplier, ask them to slightly raise their prices (5-10%). If it’s a small supplier, I usually say it’s because I know running small businesses are hard. If it’s a slightly bigger one I justify it by saying “I already know I might ask for re-dos, or additional help - consider it a buffer”.
The ROI on those 10% are usually very high. You show that you value the partnership and that you will ask for the best of them - and you willing to pay for it.
Also, it tends to shock the supplier and create great word of mouth.
As much as I dislike it, the strategy of "buying your way into a market" can work well when there are increasing returns to scale and high barriers to entry. You can use your investors' capital to drive out competition and get big, benefitting from your scale in ways that smaller players can't. However, if barriers to entry are low, new entrants can try to repeat the play, but against you this time.
In contrast, businesses that are built on quality attract a customer base that appreciates what they receive in exchange for the price. A related benefit: this is a strategy that can work regardless of where we are in the interest rate cycle.
However, it's a strategy which may require more patience than your investors have, so think that through carefully before you decide what kind of business you're building!
It is really throwing a hook with a bait to kill and eat . Sadly in the process they themselves get killed and eaten .