The conversation we missed in 2019
“Somehow, as long as we all mixed in more daily dialogue on this important new discovery, or nodded knowingly when someone else did, we would sound smart.”
End-of-year retrospectives are easier to write than predictions. I like them because I like easy things. I learn more when I try to make sense of the past than I do when attempting to conjure the future. So, I’m going to share a thought about 2019.
In my view, in 2019, there were five or six prevailing conversations that seemed to dominate the tech start-up universe. Collectively, these generated piles of articles, a hoard of talks and oceans of comments that boiled over the preverbal online pot. If you were an operator, knowledge worker, board member or investor in tech, these were likely inescapable
The one that took the cake for me, was the industry wide conversation about profitability.
By mid-year, the results of the Uber IPO confirmed that gross margin was indeed important and capital was not an endless moat. The fact that this totally makes sense was not diminished by the fact that it was also totally obvious. If nothing else, when you added WeWork to the picture, the industry had tested some good upper boundaries; and that was probably a good thing.
However, the trickle-down effect for start-up and growth stage companies quickly over-distilled into “not paying enough attention to profitability”. In fact, profitability became a new fashionable catch phrase. Somehow, as long as we all mixed in more daily dialogue on this important new discovery, or nodded knowingly when someone else did, we would sound smart. Smart enough feel safe from the bottom falling out while continuing to pursue game-changing valuations.
It was the wrong conversation though. We should really have been talking about risk. Not just risk and reward but also the degree that companies are adequately tooled to understand, communicate and execute around risk inherent in their specific pursuits. Growth-stage in tech is messy and hard and there are ambiguities: Don't burn, grow slow but risk watching helplessly from the sidelines as your competition makes you irrelevant. Or, burn hot, grow fast and become beholden to future rounds and metrics that don't always make sense for your business … and then risk watching helplessly from the sidelines as you go from hot-to-not after a stumble. It’s tough terrain for operators and investors to navigate and the dialogue around it should be better by now.
I like a good profitability story and I gravitate towards situations where low-burn companies can succeed in valuable niches. But some companies are playing checkers and some companies are playing chess. Both games are equally legit if you understand, operationalize and capitalize according to the inherent risk in the opportunity. If you are making a market you need to prioritize different things than if you are replacing something that is understood. Compared to the conversation the industry could have had, I found the chatter about near/profitability in 2019 less than perfectly genuine; and at times exhausting. Particularly when trying to assess a company’s value. The good news is that the conversation will likely be with us for a while. This holds out the promise that we will elevate how we talk about and value growth-stage tech companies, the teams behind them and the opportunities they pursue. I look forward to seeing that happen in 2020.
