Like most individuals who repeatedly add bananas to their cart, I have grow to be an expert in their life cycle.
However, only today I began to think about the similarities between this ubiquitous fruit and a typical start-up.
The basic similarity is that a banana – like a startup – reaches its peak when it is barely immature.
In the case of bananas, power guzzlers recognize indicators. Ideally it ought to be sweet but not overly sweet, light yellow with some remaining green on the skin and a texture that retains a hint of firmness.
Leave the banana even a day after it is ripe and it should still be edible. However, it should be fluffier, wrinkled and probably covered in brown spots. Leave it a few more days and it should still be edible – just not as appetizing.
In a startup, maturity indicators are also easy to acknowledge, at least in retrospect. Like a banana, a start-up company’s appeal tends to peak when its potential is each most obvious and mostly unrealized.
One of the measures of this state of affairs is when someone completely unrelated to the startup scene hears about a given company. This is the moment where the person might think, “I just found out about this, but I bet it’s going to be a big deal.”
The best laid plans
Entire sectors normally reach peak maturity when everyone thinks it’s a great idea and no one actually must make money from it yet.
We’ve seen this during the pandemic, with newcomers liking the distant meeting platform Hopin and audio social network Club has achieved unicorn celebrity status in the expectation that we’d all prefer to connect in this fashion. It turned out to not be the case.
The IPO and SPAC boom of 2021 also brought a huge variety of startups to the market, which gave the look of the wave of the future until they quickly lost appeal to investors. This included several autonomous vehicles, whose valuations plummeted, wiping out billions in market capitalization.
Around the same time, we also saw e-commerce booming again, with recent direct-to-consumer brands and online retail roll-ups attracting billions. This didn’t last either. And remember about the scooter mania, a well-documented decline preceded by a temporary period in which enterprise capitalists believed they had found the desired solution to the last-mile transportation problem.
Uneven success
Even startups that succeeded as large-cap firms saw fairly high valuations early on, especially considering the risks involved.
To take Uberof which there have been plenty $40 billion valuation in 2014, despite a history of heavy losses and a controversial “embrace chaos” corporate culture. Those who invested then did well, but it was never a given. Compete Liftfor example, it stays well below its highest pre-IPO valuation, while Sidecar and other competing ride-hailing firms have long gone out of business.
Or consider Robinhoodwhich went public 4 years ago at a valuation of $32 billion, remained at about a quarter of that level for the next few years and only recently rebounded. Other previously hot fintechs that went public around the same time, e.g SoFi AND Confirmhave also improved but remain below their original height.
Lots of examples of other favorite ventures that are still around but have not regained their original enthusiasm. This includes, among others: manufacturer of electrical vehicles Rivianprocess automation software provider UiPathand organizer of online classes Kursraamong a long list of others.
Like overripe bananas, these brands are functionally not much different than they were a few years ago. But they apparently seemed much more attractive back then.
Of course, ideally startups shouldn’t have a shelf life. They will proceed to flourish, much like the hockey stick growth projections that attracted investors.
Some people manage to realize something like this. Like freeze-dried banana, they avoided the onset of mushyness. This is an achievement price celebrating.
However, they too are an exception. In the coming quarters, as we see a massive backlog of one-off unicorns, it should grow to be abundantly clear that many of them are well past their peak of maturity.