Thread by @trengriffin

1/ What's the best way to determine which business is creating the most value below? Growth is beneficial if cash inputs in early years of a business don't exceed the discounted value of the cash those assets will generate in later years. The more that happens, the better it is.

2/ The numbers in the previous chart are from @jaminball. They provide clues to the amount and timing of cash flows into and from the business, but they aren't the only clues available. My approach is to evaluate the growth on a bottoms up per customer basis via unit economics.

3/ The value of a business is the sum total of the value of present and future customers. The more micro my focus (eg, what is the value of a customer?) the less I am guessing about an uncertain future. What a real world customer is worth right now is the starting baseline value.

4/ If you are an operator of a business your approach shouldn't be any different. You are allocating capital and you want to make sure cash inputs in the early years of the business do not exceed the discounted value of the cash that those assets will generate in later years.

5/ Unit economics always appealed to me because it involves what you know is true rather than what what you hope is true. Understanding unit economics is essential if the business has an up front "nut" you must pay back. You must be able to explain this to investors and banks.

6/ What made me a believer in unit economics? The early days of the cable industry were similar to SaaS. Acquiring a subscription cable television customer required up front nut expenditures and you had to pay them back and more with future cash flows. Lenders needed convincing.

6/ Between 1998 and 2001 I started seeing Application Service Provider businesses. I was spending time at Benchmark evaluating VC investments. The unit economics of these early attempts to create SaaS businesses looked just like I had seen in cable TV and mobile phone businesses.

7/ The late 1990s CLEC phenomenon put unit economics front and center. The nut of serving an office building was big and it had to recover that by selling a services bundle which required up front CAC. It was both brutal and fatal for a CLEC. Cash sources dried up, and they died.

8/ As an early test of ASP economics in 1999 we hosted software designed for an on-premises client-server use over the internet. COGS/CAC of providing what was then called "software as a service" produced ugly unit economics. The SaaS business evolved from failures like that.

9/ The real work on SaaS started after recovery from the Dotcom crash. Years of work were put into building what would become IaaS, PaaS and SaaS. People ask me what it was like between 2002 and 2008 when stock prices weren't rising fast. My answer: building services is big fun!

9/ Success is vastly more satisfying if you put in the work to make it happen. It's nice to benefit from work done before you arrive, but not nearly as great as something you helped build. Similarly, food you grow tastes better and makes you happier. Off to catch some crabs now.