Why does the 'burning cash for market share' logic often ignore first principles?

Good question, let's talk about this in plain language; it's actually quite interesting.

Let's start with a fundamental question: If you open a small restaurant, what's your goal? Is it to have all your neighbors come eat there, or to make money to support your family?

The answer is definitely to make money, right? Having people come to eat is just the process and the means.

First principles, simply put, means stripping something down to its most core, most essential point. For business, the most core essence is: creating value and being profitable. In other words, what you make must be desired by people, and the money you sell it for must be more than the cost you spent. This is the fundamental reason your small restaurant can stay open.

Now let's look at the "burning money for market share" strategy.

Its logic is: I don't care about making money first; I'll use investors' money for massive discounts and coupons. For example, if you open a restaurant, I'll open one across from you and offer "buy 100, get 100 free." My goal is to steal all your customers and drive you out of business. Once I'm the only restaurant on the street, I'll have a monopoly, and then I can raise prices and recoup all my previous losses.

Sounds reasonable, doesn't it? But it ignores that most fundamental "first principle."

1. It confuses "means" and "ends."

A restaurant's goal is "profitability," and "many customers" is just a means to achieve that. The money-burning model treats "many customers" (i.e., market share) as the ultimate goal. This is like running a restaurant where you don't care if the food tastes good or if the kitchen is clean; you just stand outside with a loudspeaker shouting "free food and drinks." A lot of people might come, but is that a healthy restaurant? This isn't doing business; it's doing charity, and with other people's money at that.

2. It might not attract "your" customers.

The customers you attract with "buy 100, get 100 free" – do they love your food, or do they love your discount? Most likely the latter. These are "price-sensitive users," not "value-driven users." Once you stop burning money and cancel the discounts, they'll unhesitatingly go look for the next discounted store. The "friends" you paid a high price to invite turn out to be fair-weather friends; once the feast is over, they're gone. You haven't built true customer loyalty.

3. It's built on a dangerous assumption.

This assumption is "once I have a monopoly, I can raise prices as much as I want." But the reality is:

• You're burning money, and your competitors are too. In the end, it just comes down to who has more money and who can last longer. This is a battle of capital, not a victory of business model.
• Even if you burn all your competitors to the ground, as soon as you raise prices, customers will leave.
• What's worse, as soon as you start making a profit, new competitors will smell the money and come. They can use the same money-burning tactics to fight you. Your so-called "market" is actually very fragile.

So, returning to first principles, what should a healthy business look like?

It should be that your restaurant's food itself is exceptionally delicious (core value), and the service is excellent (user experience), so people are willing to pay a normal price to eat there. Then, through meticulous management, you control the costs of ingredients and staff very well (cost structure), and ultimately, you make a profit (profit model).

The logic of "burning money for market share" is essentially a form of intellectual laziness. It avoids thinking about difficult but correct things like "how to make better food" and instead chooses the shortcut of "throwing money at it." It doesn't start from the origin of "what unique value can I provide," but rather from imitation and analogy, thinking "others succeeded, so I'll do the same."

Of course, burning money isn't always wrong. If burning money is to quickly build a barrier that's hard for others to imitate, like a massive social network (the more people use it, the more attractive it is to new users), then it might be effective. But in most cases, it's just subsidizing a product that lacks true competitiveness with money, and the ultimate result is that the money runs out, and the market share is lost.