In recent weeksGlossier laid off about 80 employees (or a third of the company’s workforce), most of whom were on his engineering team.
Although the company was tech-focused when it was actually a beauty business, it’s not hard to put these layoffs in light of the tech’s collapse in the public market.
Many venture-backed companies believe they are technology companies — in fact, they were born that way — when in fact they are not. Executives at these companies need to learn what business they are actually in, what makes these companies good, and align their engineering efforts towards those goals.
The fundamental disconnect: Software-enabled companies don’t necessarily monetize in the same way as software-based companies.
Technology companies receive the highest ratings and are endowed with the highest multiples of any sector. Striving for those higher multiples means going to great lengths to demonstrate, both operationally and financially, that you “look” like a tech company.
For a company like Glossier, looking like a tech company is the difference between a price-to-sales ratio of 5.44 like Estée Lauder or 31.6 like MongoDB. Glossier’s founder and CEO, Emily Weiss, knows this, and so do her investors.
Tech companies are valued for a reason: When they work, they have high growth rates and very high margins. Companies therefore often make product decisions to achieve a tech business profile – such as investing in engineering or forgoing high-margin operations.
Hunter Walk, for example, pointed out that striving for software margins could be one reason social media companies are avoiding the human moderation cost center.
The trouble with making these kinds of decisions is that you direct your engineering talent to the wrong problems.
But the narrative changes once you go public. The markets work by taking companies, categorizing them, and then ranking them based on known metrics. You can’t decide what kind of company you are.
You can market yourself as a tech company and use technology very well, but if the public markets decide you’re a beauty company, then you’re a beauty company (at least for valuation purposes) until you prove otherwise.