Startups fail. Yet despite the fact that 67% of VC-funded startups either die or don’t return enough to justify the investment, and only 1% reach the coveted unicorn status (a valuation of $1 billion or more), venture capital firms continue to invest in them.
That’s a real problem, and not just for investors. If VC firms fail to produce sufficient profits, investors will look for other places to put their money. Startup funding will dry up, making it tougher than ever for founders to launch their new companies.
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Having a great product or service isn’t enough to guarantee advancement. Plenty of startups have that and fail anyway. What ultimately leads new companies to profitability is the ability to predict customer needs and proactively devote resources to solving them. This means building a fantastic customer experience into the product roadmap and financial plan from the beginning. We looked at six examples of VC-funded companies that made the leap to profitability from revenue to see how they managed it.
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Another key factor in Airbnb’s success was its focus on customer experience for both hosts and guests. The company’s USP is its ease of use. The platform is simple and straightforward, and provides a higher level of security than one can get from competitors like Craigslist.
Airbnb’s customer-centric culture and go-getter attitude helped the company achieve unicorn status by 2015 and profitability by mid-2016. In 2017, Airbnb managed $93 million in profit from $2.6 billion in revenue, a roughly 3.5% profit margin.
Airbnb
- Profitable in: 2016
- Time to profitability from seed round: 6 years
- Total VC funding: $4.4 billion
- How they did it: Direct involvement in solving customers’ problems
Report Download:
How 6 Companies Went From VC Funding to Profitability
Canva
- Profitable in: 2017
- Time to profitability from seed round: 4 years
- Total VC funding: $83 million
- How they did it: Unrelenting focus on ease-of-use
“We wanted to take design from this very privileged, professional thing that only one percent of the world could do and allow the other 99 percent to access it as well.”Unlike Photoshop, which has tremendous capabilities but requires an equally tremendous effort to master, Canva’s design tools are simple and intuitive. The company’s beta version launched in 2012 to a select group of professionals. Canva founders Melanie Perkins, Cliff Obrecht, and Cameron Adams used the feedback from this group to fine-tune its product before releasing it publicly in January 2014. Almost from the beginning, Canva’s growth has been extraordinary. Just 10 months after its public release, the product hit 1 million users. In August 2015, less than a year later, Canva reported reaching the 4 million user mark. Today, the company has more than 10 million users, and its stated goal is to eventually reach 3.2 billion.
Evernote
- Profitable in: 2017
- Time to profitability from seed round: 10 years
- Total VC funding: $290 million
- How they did it: A superb free version that earned customer loyalty
HotelTonight
- Profitable in: 2016
- Time to profitability from seed round: 5 years
- Total VC funding: $117.7 million
- How they did it: Slashed expenses without slashing value
MeUndies
- Profitable in: 2018
- Time to profitability from seed round: 7 years
- Total VC funding: $10.4 million
- How they did it: Listened to customer feedback and accommodated it
“…when we launched MeUndies, we focused 100% subscription, aiming to deliver a unique experience that blended quality, convenience, and value for a premium product. Our core subscription delivers a new pair of the best undies in a variety of colors and prints to your door each month. Your drawer is always full of great, comfortable pairs of underwear.”MeUndies has built up its subscription business by focusing on customer experience. For example, when they realized that customers preferred the shortest possible delivery time, they switched to a faster and more expensive carrier, but absorbed the new costs rather than passing them on to customers. Similarly, Lalezarian realized that some of MeUndies’ customers wanted other options besides an automatic subscription, so the company began offering a membership model that allows members to buy underwear à la carte at a discounted price. It’s also opened up the option for nonmembers to make one-time purchases. Adapting its models to serve its customers’ needs has worked out well for MeUndies. The company is not only profitable, but has enjoyed substantial year-over-year growth for the past three years.
Warby Parker
- Profitable in: 2017
- Time to profitability from seed round: 7 years
- Total VC funding: $290.5 million
- How they did it: Gave customers the hands-on experience they wanted