Profitable or Big Valuation? Which One Is Best? Lessons from Living SocialRamon Ray
In the world of “venture” investing, the deals that many investors are looking for are unicorns – billion dollar companies.
Uber, AirBNB, Dropbox and other companies like this (before they go public) are what investors are looking for. Companies that can go VERY BIG.
It’s hard to be a billion dollar company and even harder to remain profitable — to grow and be a company that’s built to last. That’s what we’re starting to see with some of today’s unicorns, and it provides a good lesson for smart hustlers.
The Tale of the Unicorn – Living Social
The New York Times recently reported that Living Social (a site like Groupon and other “deals companies”) is now at only about 800 employees – down from 4,500 only a few years ago. Living Social was once a unicorn, and as the New York Times puts it:
“Before the term came into vogue, LivingSocial was among the biggest unicorns of its day. It now offers a glimpse of what some of today’s unicorns might look like several years down the road if things go awry.”
Unfortunately, Living Social isn’t the only unicorn in trouble. There are actually 142 unicorns which, taken together, are valued at nearly $500 billion dollars. Research is showing that some of these high-value companies are also starting to show signs of weakness.[Tweet “Should you focus on big #valuation or #profitability? Lessons for Smart Hustlers here:”]
Instead of Valuation – Focus on Profitability
The tale of the unicorns demonstrates that most of us shouldn’t focus on big valuation, but instead keep an eye on profitability. Focus on profit, focus on cash flow, know your balance sheet and profit & loss statements, pay attention to financial indicators. Norm Brodsky writes about this here.
If you’re distracted by Jet.com and other unicorns who are trying to scale and go very big – don’t.
Instead focus on being a company that’s built to last, that’s profitable, that treats its employees well and that provides an awesome way of life for you and your family.
Of course if going big, raising venture funds and being a public company is for you – go for it.
But for most of us – the best path to business success is to focus on the smart hustle and the goal of profitability.