Reclaiming the ‘Successful’ Company Moniker
WeWorked….We(don’t)Work…..
Chances are that you can name several successful companies. If you were asked to look around the environment that you are currently reading this from you would probably tell me Apple, Google, Samsung, Levis, Nike, IKEA, etc
Giants of their respective industries. Their logos are everywhere and you might even own their publicly traded stock. And you likely spent thousands of your hard earned dollars utilizing their products and services.
A Bit of Context
I was having an argument with someone the other day, as I do. We were speaking about a company that had recently gone public (one which I worked as a senior employee over a short period of time).
They were enamored and impressed that I had worked at this establishment and asked what it was like to have been part of such a “successful” organization.
I answered, “Well, they’re not successful”.
“What do you mean”, she asked.
“They have no functioning business model and will be out of business in a year or two once the markets catch on to this and the other lies. Even if their products worked consistently, their business model does not allow them to reach profitability”, I responded.
Befuddled and bemused, she seemed almost angry by my assessment.
“You’re wrong!”, she exclaimed.
“Well, I literally worked there and saw it first hand. Not profitable. Not sustainable”, I quipped back calmly and tersely.
They rolled their eyes and looked away while contemplating what to respond. She was not going to listen to first hand accounts that violated her reasoning or preconceived notions. No intentions of changing the topic or moving on was in sight for me either.
She continued. “Clearly you’re wrong, because everyone is writing about them in magazines and articles. And my friend uses their services all the time. They’re great”.
Long story short — I couldn’t convince her.
But then I couldn’t help myself — I asked — “do you think X..Y..Z.companies are successful”? She thought the question was so stupid that she didn’t want to participate. But something interesting came up in those examples of companies and their perceived success.
I try to subscribe to old Mark Twain adage of ‘never argue with stupid people, they will drag you to their level and then beat you with experience’.
But was this person really stupid? They were otherwise able to function quite well in life and were generally reliable on a professional and personal account. I realized this had nothing to do with intelligence or even inside knowledge of various corporate financial reports and tech infrastructure. Rather, it highlighted the fact that the verbo-mathematical equation for how we define ‘Success’ has become obfuscated and incorrect.
The world seems to have equated one variable as sufficing the overall definition of success when in reality it is the collective presence of two variables that ought to define the principle structure of success.
Law of Success
This article finds the true definition of Success as a combination of Sustainability and Impact.
Success = Impactful + Sustainable
Impactful — This element is the one where the world seems to have put all their eggs in. Here we measure its influence on society and the user base. Does it provide a functional service or good that is needed or beneficial. More commonly we might consider impact by how scalable and widely pervasive the company’s services have become in the various ecosystems. It creates an efficiency, solves a problem and generally has broad accessibility. It is generally evidenced by scalability and a large user base.
Sustainable — This has become the forgotten element over the past decade. This focuses on the company’s ability to manage itself and survive based on its self standing business model. Its continuity year-on-year is based on profitability from operations and its ability to survive and grow is from within. Put more simply, it does not rely on external support from other entities to pay its salaries and produce its goods and services. Some might even suggest an environmental component to the sustainable quotient. For the purposes of this article, we shall consider it as financial sustainability and operational continuity.
Visualizing Success
We might plot current company positions and that of their trajectories when we consider where they might fall on the Success-Matrix.
Impactful — Sustainable: These are the true stars of the corporate paradigm. They have a thriving business model with respective profits year-on-year. Their size allows them to provide scalable products at price points that are inclusive for large portions of the addressable markets. Some call them ‘evil corporates’. Regardless, their offerings and corporate structure has them thinking about the future and less about survival.
Impactful — Unsustainable: These are the ones that shock people in a debate about what defines a successful company. These companies are generally large by the time they reach a level of impactfulness and will have a global presence more often than not. They are great examples in the power of marketing as well execution of consumer-centric design. People find value in their products but are unlikely to pay the price tag if it increased significantly. These companies live off of VC cash injections, are likely to invest heavily in office ping-pong tables, use the word ‘family’ to describe overworked employees and are run by younger professionals with little to no concept of profitability. More often than not, these companies have leaders who know the fun will run out but are happy to collect their salaries.
Unimpactful — Sustainable: These are your neighborhood stores. Imagine that of a small town where the town baker and butcher work hard and serve their local ecosystem. The business makes a profit and gets passed down to the next generation. Sustainable so long as a Walmart doesn’t move into the town square. However, we qualify this segment as unimpacful simply because the scalability is low and the user base is generally limited to users within the specific geographical area.
Unimpactful —Unsustainable: These are the head scratchers. One must wonder how a company that had no chance on the sustainability front via a viable business model could get started. More interestingly, if these non viable ideas do raise money they are further coupled with poor execution on product offerings and an inability to ascertain what the market truly values. Their continued existence stems from either a wealthy grandmother or that of a VC who is either to inept or embarassed to make the right funding decision.
Caveats
One will also acknowledge that a firm is not guaranteed to maintain its status as impactful and sustainable in perpetuity. The nature of the business and associated firm cycle necessitates a company seeking to evolve and keep up with the changing economic ecosystem to ensure both priorities.
Another caveat is that you have to accept that not everything you read is true. You might find some of these situations familiar:
- When the company CEO on the earnings call says they see tremendous upside for their product despite the economic environment saying otherwise.
- When they blame pandemics and other external factors for poor demand when they are unattributable
- When a company displays its tech in a closed curated trial but it does not work in a live environment
- When companies say they are profitable but fail to acknowledge which type of profitability they are referring to (net, gross, operating?) or in which time frame.
The Start-Up Journey
Most companies inevitably start off as losers.
Even the most successful companies run losses while they create a more scaled system by which their services become availed and their brand awareness increases. In other words, the user base and associated revenue increases at a rate much higher than that of the associated costs and those of the fixed costs of the firm. The majority of world’s Fortune 500 companies were at one point financial losers. Until they were not any longer.
Yet so many of these current companies will never get there. They are running significant losses and selling products at distorted discounts in order to gain market share. Just increase price, you say? Well, then no one will use it. Low price was the only incentive, likely.
This is not to say that all start-ups are doomed to utilize this playbook without hope. Rather, I argue it is evident in the early stages of a company which ones will have a solid business model to override those early cowboy tactics.
Who’s Your Daddy
You might ask, how is a company that is unsustainable even breathing?
Well, it could be two options. Either the company has become a public provision of service and your tax dollars pay for it (think: schools). Or, more likely, your friendly neighborhood scam artist (ehm, I mean the VC industry), is likely propping this company up and keeping it on life support. The VCs continue to prop them up because it isn’t their personal cash that is being used and they look bad in the investors eyes if they stop funding someone. That would admit poor initial due diligence and would risk further investment reserves. And so, they continue to pump money into losers, which in turn allows the company to push its products for cheap prices, which in turn makes consumers happy and recognize the brand as ‘successful’. These companies have not ‘made it’. They are living on daddy’s money.
When you were a child your parents rolled you out on a stroller and everyone thought of you and your impact on the room’s joyous energy. But everyone knew you couldn’t contribute anything to the room’s conversation and you had to grow up and stand on your own two feet one day.
Imagine if your parents were still rolling you out at 40 years old talking to the world about your potential and how you were going to make it some day. This the case for a lot of these companies.
The only real question is - which ones?
The ‘Interest’-ing Path Forward
In an era of increasing interest rates and inflationary pressures, you will begin to see venture capital money dry up. Once the first few ‘sustainability fraud’ companies begin to run out of money and VCs begin to face the music and cut the money off, the spiral will be inevitable — and it will be brutal.
This is a good thing, even though it sounds morbid to the untrained financial ear. Rewiring the definition of company success in people’s brains will allow us to be more discerning, force investments into companies with sustainable futures and move the investment discourse into one that does not favor meretricious tech bros but those with real futures and substance.
Take your Uber while you can, and stock up on those grocery deliveries. It was the best of times…..
