The ROI/Growth Formula That Works
Nothing is more exciting than launching a company and seeing it fly. I should know: early in my career, I was part of a team that started with one local store and built it into a national chain with more than 200 locations. It was a heady time for a young entrepreneur, but it taught me some lessons about growth that I carried with me when I started my next company.
The biggest lesson—and the one that’s had the most impact on the way I run my business—is that a growth-at-all-costs approach doesn’t always work. I’ve thought about that a lot in recent days, watching the troubles of WeWork and its CEO, Adam Neumann. Not to take anything away from Adam—he was a young man with a big vision and the ability to bring it to life, which are the two things that define an entrepreneur. But he also took on $47 billion in lease obligations with what seems like no clear path to profitability. As a business leader, I’m uncomfortable with that approach. (And increasingly I’m not the only one.)
Of course, being a fuel-injected, venture-backed company doesn’t have to end in a flameout. For better or worse, Amazon proved it was possible to lose money for years and remain an investor’s darling. But Jeff Bezos had a pioneering vision, a massive potential audience, and, thanks to AWS, which carried the marketplace for all those years, a near limitless ability to keep spending into growth. In the wake of WeWork’s canceled IPO, companies that are unable to show “positive unit economics” and a clear path to profitability will have a much tougher time raising money.
That’s why at Saatva, we’ve chosen to take an ROI-focused approach while maintaining a comfortable level of growth. When you prioritize profitability, you can do certain things that are critical to a company’s long-term success.
You can be a better leader. The best leaders are visionary, not reactionary. But it’s hard to be a visionary leader if you’re always out looking for investors. When you’re not sweating, you can think more clearly and make smarter decisions with your team. With Saatva, I could have raised a lot more money, taken on more partners, possibly grown a lot faster. But I prefer to keep my vision focused on the future that I can clearly see, rather than chase money to keep up with a story I’m telling. A young business has to build its infrastructure, master the data, and understand how to get a return on investment before going all-in on growth. You can’t lead if you don’t know the path forward.
You can be more nimble. Today’s sophisticated analytics makes it possible to more accurately set a pace of growth and stick with it—if you want to. I’ve chosen a growth rate and EBITDA level that will get us to our next goal. My team and I are in constant pursuit of opportunities to step on the gas, and because we’re profitable, we can do so without worrying that the wheels are going to come off the cart. Likewise, I can ease up in the face of uncertainty in the marketplace. That kind of flexibility only comes when you have a fundamentally healthy business.
You can serve your customers better. Although I keep an eye on the competition, my main focus is making sure I source my products, sell my products, and service my products better than anyone. As CEO, having a healthy company allows me to think clearly about those things every day. If I can keep delivering the best value to customers and do it faster and more efficiently than anyone else, I win. It may be a less flashy way to build a brand, but it’s more sustainable in the long run.
You can take calculated risks. Like most of today’s DTC companies, we’re heavily data-driven. That means we are constantly optimizing our website and testing all of our marketing channels. But unlike some other companies, we can afford to give tests the proper amount of time to yield meaningful results. That’s critical for making smart decisions, whether it’s an A/B test of headline language on our e-commerce site or trying out a new sales channel like a brick-and-mortar location. We’re willing to sit back and give those things more time than we would if we were under the gun. Having that level of comfort saves time and money and ultimately leads to a better business overall.
You really can change the world. I’m sure Adam Neumann and his team meant it when they said they were going to do great things. But if you want to be a world-changing company, you need to build a sound business first. Unfortunately, WeWork’s example may have upended the market for IPOs for the foreseeable future, as well as put a chill on private funding for the next generation of startups, perhaps stifling other entrepreneurs with visionary ideas. But you could argue that, by shining a light on the virtues of responsible growth, maybe WeWork has changed the world for the better after all.
This article has been reposted on LinkedIn.