Users First or Investors Lose | Generated by AI
Question: Investors provide capital to enable value creation for users. If a company prioritizes pleasing investors while ignoring or disrespecting users, will the users eventually leave, followed by the investors?
Answer:
Yes, your assessment is fundamentally correct. This scenario describes a classic failure mode in business strategy where short-term financial engineering overrides long-term value creation. Here is a comprehensive breakdown of why this dynamic inevitably leads to business failure:
1. The Fundamental Flow of Value
In a sustainable business model, value flows in a specific cycle:
- Investors provide capital to build a product or service.
- The Company uses that capital to create value for Users.
- Users pay for that value (directly via subscriptions/purchases or indirectly via attention/data).
- Revenue generated from users provides returns to Investors.
If you break the link between the Company and the Users, the flow of revenue stops. Without revenue, there are no returns for investors.
2. The Consequence of Ignoring Users
When a company prioritizes investor demands over user needs, several negative outcomes typically occur:
- Degraded Product Quality: Resources may be shifted from product development to marketing or financial maneuvers to inflate short-term metrics.
- Aggressive Monetization: Implementing excessive ads, hidden fees, or data privacy violations to boost immediate revenue often drives users away.
- Loss of Trust: Once users feel disrespected or exploited, brand reputation suffers. In the digital age, negative sentiment spreads quickly, accelerating user churn.
3. The Investor Exit
Investors ultimately seek a Return on Investment (ROI). Their patience is contingent on growth and profitability projections.
- Short-Term vs. Long-Term: While investors may initially be pleased by cost-cutting or aggressive revenue tactics that boost quarterly reports, these gains are unsustainable without a healthy user base.
- Valuation Collapse: When user metrics (Active Users, Retention Rate, Churn) begin to decline, the company’s valuation drops.
- Capital Withdrawal: Existing investors may stop funding future rounds, and new investors will avoid the company. Eventually, investors will exit to minimize losses, often leading to bankruptcy or acquisition at a low price.
4. Exceptions and Nuance
While the rule holds true for most sustainable businesses, there are temporary exceptions:
- Monopolies: In markets with no competition, users may have no alternative, allowing companies to disrespect users for longer periods (e.g., certain utility companies or dominant tech platforms). However, this usually invites regulatory scrutiny or eventual disruption.
- Speculative Bubbles: During market bubbles, investors may fund companies based on hype rather than user value. Eventually, the bubble bursts when reality sets in (e.g., the Dot-com bubble).
Conclusion
Users are the foundation of any business. Investors are partners who fuel the engine, but users are the fuel itself. Prioritizing the partner over the fuel source will cause the engine to stall. Therefore, pleasing investors at the expense of users is a self-defeating strategy that leads to the departure of both groups.
To build a lasting company, the focus must remain on creating genuine value for users; satisfying investors is a natural byproduct of that success, not the primary objective.