VCs want their 3x in 3 years. Traders need their EBITDA multiples. Investment banks live by their DCF models. But every unbelievable investment has a similar story: they dont make sense on paper.
I think the golden rule stands true across business: if you’re choosing efficiency or profitability early on, the problem you’re working on probably isn’t hard enough.
The best companies revel in chaos, they are born out of it. When you’ve finally build something people want, and done the impossible, it will only get tougher and more chaotic from there.
“Why won't you just be profitable?"
Every investor asked Amazon that in 1999. The company was burning through millions, its stock had plunged 90% in the dot-com crash, and critics were calling it Amazon.bomb.
Today, Amazon makes more profit in three days than it lost in that entire year. Read that again.
Revolutionary companies endure years of strategic losses before their inflection point. When that moment arrives, the trajectory isn't linear, it's exponential. The hockey stick phenomenon.
Tesla nearly went bankrupt "within single-digit weeks" in 2018. Netflix burned $3B annually on content while Wall Street screamed about unsustainable spending. Uber lost $30B before turning its first profit.
This isn't just a modern phenomenon. In 1876, Western Union's president made what might be the worst business decision in history. Alexander Graham Bell offered to sell him the telephone patent for $100,000. The response "What use could this company make of an electrical toy?"
That "toy" became AT&T, the communication empire needs no introduction.
And this is also not a US-specific story. In 1998, Tencent was burning cash on a free messaging service called QQ. When Naspers invested $34M in 2001, most thought they were throwing money away. That investment later peaked at $250B.
Alibaba's Jack Ma made Taobao completely free for three years to fight eBay, a suicidal for the time. But he understood that in emerging markets, you build the highway before you collect the toll.
Why Losses Matter
Look at Amazon in 1999. While analysts obsessed over $1.4B in losses, Bezos was silently building an empire. Every warehouse that drained the balance sheet would later become the infrastructure other retailers couldn't match.
Or take Netflix. Wall Street obsessed over the $3B they "wasted" on content each year. Meanwhile, Reed Hastings was quietly building the world's largest entertainment company. Every show, every movie became another reason you couldn't cancel your subscription.
When Tencent made QQ messenger free in 1998, they looked crazy. Who gives away their product? But Pony Ma understood users come first, revenue follows. Those "losses" bought them an empire of 562 million users.
How long , and how much it cost the world's most innovative companies to reach profitability.
How to Spot Good Losses
Not all losses are created equal. For every Amazon, there are dozens of companies that simply lose money without building anything lasting. Here's what matters:
Unit Economics: Do the economics work at scale, at any point in the future? Amazon always made money on each book, they just reinvested aggressively.
Infrastructure Building: Are the losses funding something permanent and valuable?
Network Effects: The losses often fund growth that creates powerful network effects. Each dollar lost builds something valuable that competitors can't easily replicate.
Market Creation: Are they creating new markets or fighting for share in existing ones? It is a point to note that Meta, Alphabet and Amazon are billion dollar companies because they enabled smaller players in the ecosystem to earn millions.Perhaps it's time we viewed certain losses not as financial weakness, but as investments in market leadership. The greatest companies aren't built on perfect balance sheets—they're built on perfect vision.