Grow fast or die – Techdoxx

Deepak Gupta February 19, 2022
Updated 2022/02/19 at 5:26 AM

News that Databricks surpassing the $800 million annual recurring revenue (ARR) threshold last year was impressive, but more remarkable was its over 80% growth rate over the same period. That’s a wild pace of expansion for a company the size of Databricks, and it supported its CEO’s general vibe that his team could withstand any change in market conditions regarding the value of software startups, as long as he maintains the flowing growth.

This is similar to noting that you don’t need more than one dart on the bar because you intend to hit the target on your first try. Most people won’t make it.

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So what about slow-growing companies in the startup market, especially those now facing a changing market that is turning what used to be headwinds into full-force headwinds? Well, public markets are detailing an increasingly clear and perhaps bleak picture for companies that value growth more than profitability — that is, all startups and a good chunk of newly public unicorns.

It goes something like this: your bottom line doesn’t matter, and if your growth forecast is a hair’s breadth, we’ll destroy your value and curse you.

grow or die

Last summer, the Exchange jokingly said that cloud companies — software companies that deliver their wares over the Internet — were in a do or die situation, comparing hard results from Dropbox and Box to some high-growth startups. From where we are today, June 2021 may well be a decade behind in terms of market conditions, but I raise the point to point out that growth has always been important; we are not treading new waters here.

What has changed, it seems, is that the barrier to what counts as good earnings performance is weighted almost entirely on future growth. This means that good end results are expected as a matter of course, and the stock price – corporate value – is predicated rather than future results. That is, guidance.

For startups, the lesson here is that no matter how well you did in 2021, investor sentiment seems more tied to what you’re projecting for this year than anything else.

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