What Glossier Got Wrong – MovieUpdates

The past weeksGlossier laid off about 80 employees (or a third of the company’s workforce), most of whom were on the technical team.

While the company focused on technology when it was still a beauty company, it’s not hard to see these layoffs in light of the tech collapse of the public market.

Many venture capital backed companies think they are technology companies – indeed they were born that way – when in fact they are not. Leaders at these companies need to learn what industry they are in, what makes those companies good, and focus their technical efforts on that.

The fundamental disconnect: Software-based businesses don’t necessarily earn in the same way that software-based businesses do.

Technology companies receive the highest ratings and are endowed with the highest multiples of any industry. Pursuing those higher multiples means going out of your way to show, both operationally and financially, that you look like a tech company.

For a company like Glossier, the look of a technology company is the difference between a price-to-sales ratio of 5.44, like Estée Lauder, or 31.6, like MongoDB. Glossier founder and CEO Emily Weiss knows it, and so do her investors.

Technology companies are valued for a reason: when they work, they have high growth rates and very high margins. As a result, companies often make product decisions to achieve a technical business profile, such as investing in engineering or avoiding margin-increasing operations.

Hunter Walk, for example, pointed out that the pursuit of software margins may be one reason social media companies avoid the cost of human moderation.

The difficulty with these kinds of decisions is that you are targeting your technical talent on the wrong problems.

But the narration changes once you go public. The markets work by taking companies, categorizing them and then evaluating them on known metrics. You don’t determine what kind of business you are.

You could market yourself as a tech company, and you could very well use tech, 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.

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