At the end of the day, this is a lesson in unit economics. If you want to make a successful startup, your unit of sale better be super profitable.
Most successful technology companies sell bits, with high fixed costs but very small marginal costs. This means if you grow really big, your fixed cost growth will eventually flatten out but your profit can continue to grow. Facebook, Google, AirBnb, Uber.
If you are selling something in the real world, especially if you are owning the whole process, then your marginal costs are going to be pretty high, which means your profit margin is going to be lower. This is completely fine and a ton of businesses run like this, but these businesses have to be very careful with their fixed costs. You can't grow like your average tech startup because this model is different than most tech startups.
The exact reason they are going out of business is less important than the fact that a business with high marginal costs is very fragile. A slight increase in a high marginal cost can destroy your profit margin, whereas if your marginal cost is extremely low then you are much more resilient.
High fixed costs + low marginal cost = Good
High fixed costs + high marginal cost = Be careful
Most successful technology companies sell bits, with high fixed costs but very small marginal costs. This means if you grow really big, your fixed cost growth will eventually flatten out but your profit can continue to grow. Facebook, Google, AirBnb, Uber.
If you are selling something in the real world, especially if you are owning the whole process, then your marginal costs are going to be pretty high, which means your profit margin is going to be lower. This is completely fine and a ton of businesses run like this, but these businesses have to be very careful with their fixed costs. You can't grow like your average tech startup because this model is different than most tech startups.
The exact reason they are going out of business is less important than the fact that a business with high marginal costs is very fragile. A slight increase in a high marginal cost can destroy your profit margin, whereas if your marginal cost is extremely low then you are much more resilient.
High fixed costs + low marginal cost = Good
High fixed costs + high marginal cost = Be careful