Today’s guest post is from Matt Weeks, a serial entrepreneur and longtime friend of NTR.
image source: here
From Matt:
I saw a great article in BI about Postmates CEO Bastian Lehmann’s attitude towards hypergrowth.
For years, venture capitalists have been pushing hypergrowth over profits, at least though the initial phases of investment rounds. Investors told Lehmann to reinvest the company’s money in pushing more growth over building a sustainable business.
That advice didn’t go far with the Postmates CEO. (…) Lehmann argues that it’s the CEO’s fundamental job to have looked at the margins and made decisions early on.
“Companies that run for the last two years in hyper growth are now wondering how to make money.”
I completely agree — hypergrowth without a hope of unit economics that lead to profitability has always been a fool’s errand with precious few exceptions, and even those “superstars” eventually had their “come to Jesus” realization moments when investors got nervous and were anxious for at least a hope of a repeatable, profitable set of unit economics. It’s okay to use early capital to explore and iterate to figure out the product-market fit and pricing/monetization formula. But at some point there must be a path to profitable and repeatable unit economics.
There has been a sense that pushing the bidding of sequential funding rounds at ever-increasing valuations would create a kind of de-facto “momentum” and crowd-out 2nd and 3rd and 4th place contenders, or at least amass a large enough war chest to drive marketplace pricing down as much as needed to push competitors out of the running (usually also by creating such a huge and dominant brand that customer acquisition in a noisy market is too expensive to make progress to catch up with the so-called leader).
Continue reading Matt’s point of view: from unicorns to reality