What Are the Best Companies Out There?

2min Snip

00:00

Play full episode

Summary

Transcript

Episode notes

Google is one of the best companies, if you were to ask just hat like, what are the best companies out there in terms of competitive depreciation and modes and defensibility? They have 55 % gross margins. A contrast it with a company, also a very high quality company, but i think few would argue a better company, a like booking or expedia. And those companies have 90 % gross margins, but they actually pay a massive tax to google themselves. Yo, book ind inexpedient are actually the largest customers of google. Like, where does the power lie? Like it lies with the business with much lower gross margins than the company with higher gross margins.

Gross margins–which are essentially a company’s revenue from products and services minus the costs to deliver those products and services to customers–are one of the most important financial metrics for any startup and growing business. And yet, figuring out what goes into the “cost” for delivering products and services is not as simple as it may sound, particularly for high-growth software businesses that might use emerging business models or be leveraging new technology.

In this episode from June 2020, a16z general partners Martin Casado, David George, and Sarah Wang talk all things gross margins, from early to late stage. Why do gross margins matter? When do they matter during a company’s growth? And how do you use them to plan for the future? The conversation ranges from the nuances of and strategy for calculating margins with things like cloud costs, freemium users, or implementation costs, to the impact margins can have on valuations.