Exploring the Startup Universe: Lessons from a Three-Decade Journey

In our volatile world, startups are like celestial bodies in a vast cosmos - they have the potential to captivate, inspire, and ultimately transform our lives. But how do they achieve such gravitational pull, even during an economic downturn? The answer is simple yet profound: by challenging the status quo and creating something unprecedented.

Consider the meteoric rise of Elon Musk, arguably the world's wealthiest individual. His success story is not the norm but the exception - an alignment of ambition, dedication, privilege, and a dash of serendipity that has birthed the mythical unicorn company. His ventures like Tesla have become the embodiment of innovation, creating a new, electrified paradigm for the automotive industry and making electric vehicles not just practical, but aspirational.

Having been at the helm of startup growth for three decades, I too was drawn to Tesla's allure and became an owner. My experience since then has been nothing short of extraordinary, which is a sentiment echoed by many Tesla owners. We are captivated by the impossible becoming possible, by narratives that promise a better, more sustainable future for everyone, and by the potential for sizable financial gains.

However, it's important to remember that every narrative will eventually face a reckoning. Profitability, after all, is the ultimate arbiter of business success. Even behemoths like Tesla and Amazon have evolved from promising the moon to delivering solid, positive EBITDA - though it took them 17 and 14 years, respectively. They were able to leverage investor funds, expanding their market presence and creating new worlds of demand in the process.

However, not all companies can successfully walk this tightrope between promise and profitability. Many, in their pursuit of rapid market share, engineer demand through marketing tactics, rather than achieving the critical product-market fit.

The cannabis industry, which saw spectacular growth after its rollout in 2015, experienced a harsh reality check in 2019 as many of its so-called "unicorns" lost nearly all their valuation. WeWork, another poster child for high growth and high valuation, also saw a dramatic fall from grace, a stark reminder that pursuing market share at the expense of sustainable economics can lead to a steep downfall.

In today's world, even investors, buoyed by public enthusiasm, are driven to inflate valuations. The mantra seems to be 'winner takes all,' with everyone cheering from the sidelines.

Yet, the sobering truth always emerges. As we move forward, we are seeing a return to 'Kelly Blue Book' valuations - pragmatic assessments based on EBITDA and sustainable year-on-year returns.

In 2019, for instance, WeWork was valued at $47B and GM at $51B - a comparison that, on the surface, may seem reasonable. But deeper scrutiny of known market dynamics and tangible data often reveals a more realistic valuation story. This brings us to a crossroads: should we value businesses based on real numbers or the allure of potential?

As we venture into the next few years, the startups we choose to invest in and the narratives we choose to believe will reflect our willingness to embrace moonshots and remain captivated by the promise of transformation and profit. Navigating this startup cosmos is not for the faint-hearted, but for those who dare, the rewards - both tangible and intangible - can be astronomical.