Tom Wolfe, the author of The Bonfire of the Vanities, The Right Stuff and many other bestsellers, once wrote an article called The Great Relearning. It was about how societies sometimes need to relearn things that have collectively been forgotten.
One example was San Francisco’s health clinics in 1968. Hippies were challenging the status quo in virtually everything, including things like hygiene. Why should everyone have their own toothbrush? Why launder your bedding occasionally? Why wash your clothes, for that matter?
What happened was that these weird diseases were showing up in the clinics. The doctors hadn’t been trained to treat these diseases as they had been largely eradicated from modern life. Some of the diseases didn’t even have medical names.
But in time, the doctors figured out these ancient diseases and cured those that suffered from them. And then recommended the practices of modern hygiene, that were introduced long ago for good reasons. It was a Great Relearning.
Things move faster now and we seem to forget more quickly too. The financial markets seem to be going through a Great Relearning when it comes to tech companies. Remember the dot.com boom of the 1990s? There were times when any stupid business with a website and .com after their name was valued at many multiples of sales! Never mind they had never made a profit and couldn’t demonstrate how they ever would.
Eventually, in the early part of the 2000s, the markets learned to value profit. Again. Companies had to make money or show how they could make money given enough time/capital/praying or other resources.
We seem to be going through another Great Relearning. WeWork is the latest good example of a company that fell from great heights. Their business model makes no sense. But there are many other Unicorns that have raised vast amounts of capital, whether privately or publicly, who can’t demonstrate a path to profitability. Uber and Lyft are examples, but if they can ever get rid of their drivers, their models might work. Others have no plausible way to profitability.
Of course, the Initial Public Offering is still a huge deal, but many start-ups never intend to have an IPO. For most, the intention from the beginning is to get big enough that they are an attractive takeover target to a much larger company. Still and all, the tech giants need to see a way their new acquisition will lead to more profits to earn a return on their investment.
Isn’t it pretty basic that a business needs to make money? Profit isn’t a panacea for business, but it comes damn close. Even non-profits know the mantra is, “No margin, no mission.”
Why then is it that in less than twenty years, we’re going through a Great Relearning about the importance of profit in start-ups? I’d suggest the age-old reason—greed. Investors are looking for returns and it blurs their vision and clouds their judgement. Greed.
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