Not The Target Market

I Am Not Young Enough to Know Everything*

kids-on-phonesIt has been a busy last few weeks. Now that the baby shower is over, I am catching up on my “piles.” In an effort to tidy up for a houseful of guests, I swept up unread newspapers and magazines, several books, pads with multiple lists (generally with the same items) and who knows what all else into eclectic piles and stashed them in closets and drawers. I am now weeding through to see what I missed.

One item of interest was this article from the June 17 Wall Street Journal. 

While specifically about Birchbox, a company that ships subscription boxes of beauty samples to its customers each month, the article is also about a general chill in venture capital.

“There is a complete reversal,” co-founder and CEO [of Birchbox] Katia Beauchamp said in an interview. “It is all about showing how you can operate this business profitably and it has forced us to completely change the way we operate, the way we spend money.”

Do I detect a note of surprise that she is being held accountable for profits? For spending money wisely? What exactly did she learn at Harvard Business School? I admit to being a little boggled by this comment.

In the end, all business is about profit. Period. Without profit, a business won’t survive. Ergo, it seems reasonable your backers would want you to focus on it. Profit isn’t a dirty word; it doesn’t automatically mean “Robber Baron.” Profit is the only reason for anyone to go into business in the first place. Even “non-profits” have to generate a positive cash flow to cover expenses and improvements. I would imagine venture capitalists would like to see a lot of profit so that they can make a good return on their investment.

There is undoubtedly more to the story than can be told in this short article, and I may be ungenerous in my criticism; however, it seems to this fuddy duddy grandma that blowing through $60 million in venture capital in a mere two years and, like Oliver Twist, coming back for more, is a bit excessive. These days it seems there is always a blurb about a new startup, and the main idea appears to be that they are all optimistically worth multiple millions by the second week – and yet no one has quite figured out that profit thing. And all the while the founders blithely go on spending cartloads of other people’s cash. It’s a business model I’ve never quite embraced.

The investment world is afraid it might miss the next Facebook, and so it throws money at these startups, which appear to be run by clueless kids. Kids who might have some brains and some good ideas, but at the same time, they are kids. And what’s more they are kids who are used to being told that they are brilliant and of course they can have anything they want.

These kids are both used to doing it “their way,” and having it all now. Everything. At once. This minute. And so they think nothing of asking for $40 or $60 or $90 million. They spend it and then look around for more. Whatever happened to small beginnings, testing an idea, growing a little at a time? Or is that not done anymore?

Once again, my preference for a 3D, flesh and blood world, shows my age. In the “real” world, by the way, there is not an endless magic pot of money for paying the bills. In the real world, you have a responsibility to the people who invest in you; you have a responsibility to your employees. You have a responsibility to understand actions and consequences. You have a responsibility to act like an adult.

*Title thanks to Oscar Wilde. It appears that every age has its cocksure kids. It also occurs to me that the next time anyone under 35 starts to lecture me on how things should be done, I will sweetly apologize and say:  “I’m sorry. I’m not young enough to know everything.”

2 Comments

  1. The Yeti

    Wow! Fundemental business practices put in print. A dangerous path to walk in a crowd of Millenials.
    Great post.

    Reply
  2. Kevin

    While I think the confusion of that one Millenial is funny, her view was formed by the older (Boomer and Gen X) investor class. The “burn rate” was a badge of honor – indicative of the hyper growth needed to ‘own” the space that is being played in.

    We Boomers have a lot to account for regarding the morals and lessons we passed on the the subsequent generations. Teaching that an infinite burn rate is OK is just one of them.

    Of course most startups fail Lots of investors got burned financing a ridiculous burn rate only to have the start-up crater (pets.com, anyone?). I imagine there are lots of foosball tables that can be had cheaply around San Francisco. So, now there is a return to a profit emphasis. Who knew? Someone needs to let Elon Musk in on this new secret.

    Reply

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