November 07, 2013

Billion Dollar Startups - And The Companies We Work For

In the trade journals, we seldom hear about the success of a store like, say, Pottery Barn. Instead, we hear about the new businesses that break through - we're told that they are "the future", and if we don't keep up, our business model is "dead".

There are a few companies that are e-commerce related that broke through to a billion or more in valuation. Tell me what you see.

Here's RetailMeNot:

Next up is Groupon:

Third is Gilt:

Fourth is Zulily:

And finally,

None of these businesses are Cuddledown of Maine, are they?

With the exception of Fab, who seems to be pivoting in all sorts of chaotic directions, the companies that "won" either sold your products at dramatic discounts, or sold their products at markdown.

Is it any wonder that this is all you ever hear about? Discounts. Deals. 

Notice, of course, that the article suggests that the odds of earning a billion dollar valuation are about 1 in 1,500. So yes, you hear all this discounting nonsense, but if you were to start your own business seeking VC funding, the odds of getting to a billion dollar valuation are close to zero.

Close to zero.

Meanwhile, few (if any) people ever talk about a business like Chasing Fire-Flies ... largely bootstrapped on profit until selling to HSN for tens of millions of dollars ... selling proprietary merchandise at full price. That's not fun to talk about, is it? Heck, they're catalogers. 

Catalogers!! That stuff is dead. Unless somebody cut you an eight figure check.

So - discount yourself to death, have at it, it's fun, people talk about it, and you can really ring the sales meter. And if you're starting from scratch today, you've got virtually no chance of winning the lottery. But again, people will talk about you - ENGAGEMENT! Based on what we read, you'd rather have engagement than profit. And if you win the lottery, you REALLY win the lottery!

Or you can build a solid business, take 4-7 years doing it, get to $40,000,000 in annual sales and $4,000,000 in annual profit, and sell for eight figures.

The latter doesn't seem like failure, does it? Sure, you may not succeed, but your odds of success will be better than 1 in 1,500.

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Oh, It Adds Up

Let's look at an example. You have a winning item. It sold 50,000 units last year at an average of $30.00 each, for $1,500,000 in sales....