Fast growth can bring about structural changes as well, as spry start-ups become big (sometimes bloated) organizations. Take Zendesk Inc., the cloud-based customer service platform that exploded in 2010-11, then IPO’d in 2014. The thousand-employee firm rode a technological advantage to success, but now faces pressure from smaller, more agile competitors. While many analysts still see a bright future for Zendesk, the company is spending more than ever to acquire new customers, leading to millions in losses. Investors can only hope the big bet pays off.
We round out the list with three popular consumer brands: TrueCar, Zillow and Pandora. All three companies have assured investors that their losses are all about future growth, and each has invested in key assets like technology and strategic partnerships.
“We’re building a brand,” said TrueCar founder and CEO Scott Painter in a May 7 earnings call, where he stressed new marketing initiatives, including TRUECash, which allows dealers to offer special deals based on customers’ location, car preferences and auto needs. “It’s not a shopping experience, it’s a buying experience.”
Meanwhile, Zillow continues to reinvest capital in strategic acquisitions and partnerships, whether it’s signing up individual agents or making giant purchases, like its $2.5 billion acquisition of competitor Trulia. (While the deal finally closed in 2015, Zillow attributed $21.5 million of its 2014 losses to costs associated with the acquisition.)
Of the three brands, Pandora arguably has faced the most heat, a company with lots of competition from big-name competitors like Spotify and Apple Music. For now, Pandora remains on top of the industry, with better brand recognition, more users and more revenue than its rivals. But unlike cars and real estate, the music industry presents many looming problems: consumers want to pay less and less, while streaming services must pay more and more to maintain an acceptable catalog of tunes. Time will tell whether Pandora—or really, any of the streaming music players—will emerge as sustainable, profitable businesses.
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