Suddenly startups are talking about profitability and highlighting the gross margins on their business from the beginning. There’s no more talk of “still being in growth mode” or jokes about burning through cash...
Investors packed Y Combinator's prestigious Demo Day on Tuesday to listen to startups pitch their business. But those pitches had a different tone than they did six months ago.
Suddenly startups are talking about profitability and highlighting the gross margins on their business from the beginning. There's no more talk of "still being in growth mode" or jokes about burning through cash.
Take Rappi, a Latin-American focused startup that describes itself as a cross between delivery services like Instacart and Postmates.
Investors used to be excited about startups that wanted to deliver anything at the touch of a button, but recent high-profile flameout of SpoonRocket and whispers of troubles at other similar companies like Instacart have investors more skeptical.
Rather than touting its technical advantage over either company, Rappi turned to flouting its gross margins. It can pay workers $2 an hour (above the minimum wage) instead of the $15 the typical Silicon Valley company has to pay. The increased density of the cities also means it can get delivery charges down to 70 cents instead of the $3 many US customers have to pay. That gives the company 15% gross margins. (Postmates, in comparison, claims to have 20% gross margins after several years.)
"The great thing about Latin America is that's where we actually can be profitable," Rappi's founder Simon Borrero said to the laughter of investors.
Deako, a light switch company, makes 75% margins on its "dumb" light switches that it sells to homebuyers. Even when people upgrade to the "smart" version, the startup is still making 68% margins.
There was still a lot of cherry-picking of random metrics like "letters of intent" — which are nothing more than a "hey I like you" letter — to show growth. But startups both highlighting and emphasizing the margins on their consumer business is a palpable shift in a time when making money is suddenly popular again.
Click here to view full article