Growth At All Cost is Costing Growth
2 min read
Growth at all costs = massive pressure
It pressurizes 0-1 operators to pursue multiple markets before monopolizing the market.
It pressurizes operators to quickly build multiple products, features and use cases before their products are validated or stable.
The initial team won’t keep up. So they have to keep hiring in order to close the talent gap.
The existing tech stack won’t hold up. So your teams keep buying tools to close the technology gap.
The existing cash won’t burn long. So founders keep raising further rounds to get more money and higher valuations.
Doing all these even before there is profitability with the hopes that their sky-high valuation (at least 10x revenue multiples) will gift themselves massive payout at exit.
Valuation > profitability 🤯
Valuation over profitability has been the dominant tradeoffs thanks to the successes of big tech that did the same (Amazon, Facebook).
If you take VC money, you have no choice but to grow, grow, grow regardless of profitability.
But the problem is that operators often end up planning and making decisions that will favor them in the bull market scenario. Even their conservative scenario does not take into account of recession. (Conservative scenario is based on their ability not doing executing well)
So what happens during bear period like recession?
The markets they pursued (other high-growth tech companies) aren’t buying as much or stopped buying their all-in-one solution altogether.
The house of cards tumbled down quickly.
No sales + high churn = high burn = running out cash in n months = VCs tighten up their pocket = no more easy money = slashed valuation = tech layoffs