Can UX transform antiquated manufacturing paradigms? The former CEO of Qcut — a fashion retailer that made women's jeans in 400 sizes — talks digital maturity beyond the tech sector, and the impact venture capital and scalability had on Qcut's fate.

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Since my talk on DWP’s Main Stage last March, Qcut (the company I founded) ceased operations.

What happened?

Qcut failed for the same reason all startups fail: it ran out of money. It may seem glib, but it’s the simplest answer.

Still, what does all this money talk have to do with design? For one, it defines the universe within which you play. The performance indicators your designs must hit are determined by your business model and funding sources. And your job as a designer is to understand the inherent tensions between business goals and user goals, and wherever possible, find ninja moves to align those interests.

For the love of all that’s good, learn from my experience as a designer-turned-startup-CEO. The two years I ran my own company was a crash course.

If you’re a designer for a startup, or any company maximizing for growth, this is your cheat sheet to understand why the business is doing what appears on the surface to be crazy things.

Startups relying on venture capital are managed for growth, not profitability. When you sign up to be a startup that’s raising institutional money — a.k.a. venture capital — you’re signing up to manage your company for growth. That’s the absolute requirement. And if you can’t convince them you have the potential to get to a hockey stick of growth, they won’t even write you the smallest check.

IT ISN’T ABOUT PROFITABILITY

Amazon isn’t profitable. And it isn’t on purpose. They’ve been past the break-even point for many years, meaning their revenues cover their expenses. They get to choose whether or not to be profitable. Amazon chooses to reinvest its profits into growing their business by hiring new staff, acquiring other companies, and buying big ticket items like buildings, server farms, etc.

For most startups, though, it takes several years to break even. Qcut forecasted breaking even four years after the founding of the company, which is a pretty typical timeframe.

Why couldn’t Qcut raise the next round? Well, that gets to the core of the second problem of venture capital. Venture capital doesn’t fund most types of businesses. They fund ones where you can cram in tens of millions of dollars to accelerate the growth to produce a $1B company in five to ten years. To be a VC-backed company, one magical, golden characteristic is required. And that’s scalability.

Easily scalable companies have:

  • Short sales cycles
  • Low capital costs
  • Recurring revenues

Scalability is what allows millions of dollars that have been invested to be quickly put to work. VC wants to turn a small business into a very big business in only a few short years.

IT HELPS TO BE SaaSy

This is why we see the SaaS (software as a service) being the most commonly funded type of company. You’ve already heard of these – Slack, Dropbox, Snapchat, Pinterest, Houzz, Evernote, Vox, Buzzfeed, SurveyMonkey, Spotify. These tend to have either a monthly subscription or ad-supported business models which give them stable recurring revenues.

Then there are the class of companies you might think on the surface have capital expenses, but actually don’t. Uber and Lyft don’t own their cars. They would’ve needed substantially more investment if they did. The same goes for AirBnB. They don’t own the property, which is how they can expand to new cities and countries so quickly.

The more recent crop of startups valued at more than $1B, aka unicorns, includes a few that buck the trend. They require significant capital investment – Blue Apron (grocery delivery), Warby Parker (prescription glasses), SpaceX (rockets) and 23andMe (DNA testing). I’m excited to see them on the list, but remember they represent the exception — not the rule.

You must know how your startup’s investors are measuring your company’s growth so you can design for your users in a way to support that. Otherwise your voice and work is going to go often unheeded. None of us like to be treated like we’re hitting things with the pretty stick.

The more you understand the business motivations of your company the more you’ll talk differently and will be listened to differently. One of my favorite secret weapons is to listen to the competition’s quarterly earnings calls to learn what growth metrics they’re tracking against.

There’s so much more to learn. Hit the subscribe button on the Startup podcast and The Heretic newsletter. Lastly, please hit me up on twitter @crystaldbeasley or my blog.