Is There Such a Thing as a Bad Business?

Is there such a thing as a bad business?

I think about restaurants, airlines and others as just bad businesses (or at least hard ones). There are some businesses and industries that are structurally low margin, low defensibility, and hard to scale.

I then think about the frog in the pot analogy. The water was fine when you got in. The first salad bowl place. The low cost airline. But then margins compress, or some new tech changes the game, or customers start wanting a thing you don’t sell. It happens a degree at a time, which is exactly why you don’t notice.

It feels like this is happening a lot around me.

The press would lead you to believe that SaaS is now a bad business. But is the category actually dying, or is the team just not pivoting well into AI? It’s hard to discern what’s a lack of foresight (frog in the heating water), poor execution, or just structurally no longer a “good” business.

I’ve asked this about my own corner of the world. Seed used to be a certain kind of business, and it has turned into a different one. I’m asking myself how warm my pot is now. And the same questions: am I seeing the future objectively, are we making the right moves, or is there a structural shift that isn’t going to change? Honestly, I’m still not sure (more on that another day;).

The other confounding part about being the frog is that other frogs are climbing in:) The rush of new VCs. The many near-identical AI companies all chasing the same wave. From the outside the water looks warm, inviting even. Maybe they see an opportunity I’ve gone blind to. Or maybe they just can’t feel the heat yet, because being new to the pot isn’t clarity. No baseline for what the water is supposed to feel like.

You can’t take your own temperature in there. You need someone standing outside the pot who will tell you the truth about the water. I often ask other investors and builders outside our ecosystem for perspective on our business, valuations, and the macro generally.

So how do you know when it’s a bad business or a hard one? From where we’re sitting in the water, I’m not sure any of us can really tell.