What should startups take away from the highly visible shutdowns of companies like Homejoy and Zirtual?
Understand your margins.
I’ve met with a decent number of “on demand” companies with great, great CEOs and founders. Who don’t understand their margins.
In software, you really don’t have to understand your margins. Because software basically has 80%+ gross margins. It costs a lot to build, but basically nothing to ship to millions.
I’ve met with on demand companies that seem to have OK margins on the surface, today at least … and then I ask if they can withstand people costs going up 50%+ when they have to convert them to employees, deal not just with taxes but also HR issues, etc.
Most can’t answer the question well.
They don’t understand their margins.
