Their FAQ answers your question. They are planning to simply eat any project budget overrun, aiming for growth rather than profit.
YOU SOUND TOO GOOD TO BE TRUE.
HOW CAN YOU DO IT THIS CHEAP?
Agencies and development shops have a lot of overhead
& are fundamentally lifestyle business, meaning that
their focus is profits. Gigster is venture-backed so our
focus is growth & customer satisfaction. We’d have a
referral from you than your money. Profits come later
when we are at scale.
Translation: we're burning other people's money so we can underbid anyone and build a customer book. Of course, at some point someone is going to want the business to be profitable and then, hey presto, you're a dev shop like all the other dev shops.
I'm disappointed in YC for funding this; I think it's destructive to the hacker economy/ecosystem. Excerpting a comment from a thread last year re: Marc Andressen's complaints about startup burn rates that applies:
---------
I find it very hard not to get angry at these posts...
...One of the biggest problems facing my company right now is dealing with all of the venture-funded idiots coming after my customers, market and employees without so much as a hint of a viable business model. They outspend us on marketing 1000-to-1 and they offer to serve our clients essentially for free, apparently just to be able to win a logo for the "traction" slide in their deck in the hope that they will have enough proof points to get them their next hit of venture money.
I know that nearly all of them are going to vaporize eventually, but in the meantime they completely poison the well for all of us who are trying to do what Andressen, Wilson and the rest pretend they want startups to be doing - creating sustainable businesses in sustainable markets.
can confirm, used to be angry but I stopped fighting it and just went with the flow. In fact it drove me out of the lower consumer market and forced me to go higher up in the ladder and make more money and deal with less clients who in turn were frustrated with the VC backed solutions.
Unsustainable business models backed by a sugar daddy offering even more commoditization taking spoiled and angry users out of the market? Fine with me if you believe in free lunches, but somebody is paying for it, and cash is a finite resource so.
I can definitely understand the anger and that was my initial reaction last year but then I just stopped giving a damn. I stopped caring. I don't have to take this client and offer them deep discounts to match "free". I realized I rarely have to do anything. I can simply choose to wait for the next bus which won't be crammed with ton of people fighting over seats. I am so much happier and profitable as a result.
Will this attract 'cheap' customers? As a potential customer I think I prefer the idea of a company that profits by the standard of doing my work, rather than a referral standard I have no control over.
Ha, exactly, except that too good to be true usually is. I have a hard time believing the "low ball high volume" strategy is going to lead to well-executed projects.
I think the actual strategy is push idea guys into sharing equities so they get both some money for the initial investment and make it big on equity with relatively low risk if the project succeeds.
From another pov they are vc to idea guys, only instead of giving the money for equity they give the product for equity.
With the difference that they also get paid for it!
Thanks. I had an idea similar to this while working at a larger company. I wanted to start a tiger team to follow startup technically. Leveraging the employer name we could have vetted them to increase our success ratio and be sure both of the business idea as part of the vetting and of the technical side. Sadly this project would only have netted millions and the previous company wouldn't touch anything under billions.
Go figure. They prefer to acquire company after they hit success for top dollar and run them on the ground instead of actually fostering innovation.
