What Glossier Got Wrong

What Glossier Got Wrong

Glossier has fired off roughly 80 individuals (or a third of its corporate personnel) since January 2022, the most of whom were on its tech team. Despite the fact that the firm concentrated on technology when it was primarily a beauty company, the layoffs are understandable in light of the public market tech catastrophe.

Many venture-backed firms mistakenly assume they are tech firms — indeed, they were founded as such — when they are not. Leaders at these organizations must understand the nature of their business, as well as what makes them successful, and focus their technological efforts on those goals. The basic difference is that software-enabled businesses do not always commercialize in the same manner that software-based firms do.

Technology businesses have the most valuable values and the largest multiples of any industry. Pursuing larger multiples necessitates going to tremendous pains to demonstrate that you “look” like a tech business, both operationally and financially. Looking like a tech business is the difference between having a price-to-sales ratio of 5.44, like Estée Lauder, and 31.6, like MongoDB, for a company like Glossier. Emily Weiss, the creator and CEO of Glossier, is well aware of this, as are her investors.

Tech firms are highly valued for a reason: they have rapid growth rates and very high profits when they function. As a result, companies frequently make product decisions to fit a tech company profile, such as investing in engineering or avoiding margin-draining operations. According to Hunter Walk, chasing software margins may be one of the reasons why social media businesses avoid the cost center of human moderating.

The trouble with making these kinds of selections is that you’ll end up directing your technical skills toward the incorrect challenges. When you become public, though, the narration changes. The markets function by classifying firms and then rating them based on well-known parameters. You don’t get to choose what sort of business you want to run. You can portray yourself as a tech firm and employ technology, but if the public markets determine you’re a beauty company, well, until you prove otherwise, you’re a beauty company (at least for value reasons).