Unrealistic Valuations and Getting Back to Fundamentals
It’s almost as if creating a company with a valuation of $1B+ is the single most important goal of entrepreneurs rather than creating a profitable and sustainable business. In the on-demand food/delivery space, there’s a ton of competition and a race to take the lead. Instead of achieving this goal through pure business growth fundamentals, popular thinking seems to dictate that the easier route is to just gain unicorn status and use the value of the company as the metric of market leader. (Granted, logical VCs should be funding companies that have actual solid growth metrics or at the very least a leadership team that has absolutely zero doubt in their minds that they will win no matter what.)
The concept of enormous funding rounds and stretched valuations paving an easy road to success/growth may be changing. This is highlighted by DoorDash recent failure of a new funding round at a supposed $1B valuation.
Perhaps racing to goals for investment should not be the primary objective. Perhaps companies should be focusing on core growth fundamentals such as the following strategies:
- Beating competition in quality vs. price. For example, a similar service like Caviar selects only top quality restaurants to feature in a local market. They don’t feature brands like Denny’s. The choose quality vs. quantity.
- Walking before running. Nailing operations. Gaining traction in the market, becoming the leader in the locale and moving onto another.
- Learning from Wallapop’s leadership and don’t disclose the capital raise amount or valuation.
- Focusing on getting good PR for outstanding service, an exceptional value proposition and building a fun and trustworthy brand, rather than the latest Techcrunch story on closing the Series B.
The goal should not be to raise an obscene amount of capital which can lead to an artificial valuation. Note what happened with Gilt Groupe, as they once had a $1B valuation but we’re recently acquired by Hudson Bay (SAKS) for only $250M, less than the total amount of funding they took before being bought.
Maybe it’s time for startups need to get back to small business fundamentals. (you know, those principles of “buy for one, sell for two” that have been around for thousands of years…)
Just a thought…