The Boy Who Cried Unicorn

Business analysis is fundamentally about predicting things. You have a model of the world, you feed current events into it—product launches, acquisitions, financings, etc.—and then you come up with a prediction of what will happen next.

When I first started writing Divinations, I did not realize this. I thought I was going to write about the timeless principles of business strategy, like trade-offs, wedges, and value chains. Turns out, these ideas are not worth much in a vacuum. The only way to make them come alive is by contact with reality. Only by attempting to use an idea can you truly understand it.

So, without really intending to, I’ve ended up making a lot of predictions over the past few years. Some were complete whiffs (I once claimed Quibi would be a multibillion-dollar company) and others were pretty spot-on (in the peak of Roam’s hype cycle, I said it would likely fail unless it got usage within teams).

I’ve never taken a step back and graded my predictions, but now that enough time has passed, I thought it might be fun to do just that. So this week’s post is pretty simple: I’ll grade five predictions I made in 2020 and see what we can learn from them.

1. Quibi will be a multibillion-dollar company (F)

It’s hard to be more wrong than this. The day Quibi launched, I wrote an article claiming that short-form premium video was here to stay. At the time this was totally against the conventional wisdom. Everybody thought Quibi would fail. Turns out, they were right.

Looking back, I think there were two big reasons I got this wrong.

The first is that it was relatively early in my writing career, and I was a bit eager to assert a bold contrarian claim. It was the first article in which I made a big prediction. After spending a few months writing explainers of classic business strategy ideas from thinkers like Michael Porter and Clay Christensen, I was ready to put those ideas to use. I was excited about the idea of being the lone voice who “called it” when everyone else had doubt. I should have been more patient.

The second reason I got this wrong: I was too excited about the product idea in theory, but didn’t reserve judgment until I had more experience actually using it firsthand. I thought it would be a good idea to post my prediction of its success on launch day to maximize attention to the article. The downside of this—I had to write the article without actually trying the product. I should have waited to form an opinion.

In theory, Hollywood-produced content packaged into 10-minute episodes sounded great. I thought this would be able to compete with Instagram, TikTok, and YouTube. When I sit on my couch at night to watch TV, I almost always choose premium content rather than user-generated content. Not everyone is like me in this regard, but a lot of people are. Therefore, if Hollywood decided to make shorter content, wouldn’t I prioritize watching that on my phone instead of scrolling social media?

What I didn’t realize is that the tricks Hollywood uses to keep us hooked only work when viewers have uninterrupted time to engage with the material. Plot and character-driven stories require focus from the audience. In contrast, a funny joke or cool dance on TikTok is easy to consume and understand on the go, whether you’re standing in line for the bathroom or waiting for co-workers to log on to Zoom. I was comparing apples with oranges!

Lesson learned: Actually use products before you make predictions about them.

2. Notion’s $2B valuation in 2020 is sensible (B-)

Notion raised a Series B in 2020 at a $2B valuation, and at the time a lot of people thought it was a wildly high price to pay for a relatively young SaaS company. So I decided to do a little napkin math and see what kind of revenue multiple that might represent. I then compared it with public companies to see just how crazy it was.

I give myself a B- on this for three reasons:

1. It really was a sensible valuation at the time if you benchmarked it against public SaaS companies.
2. Notion raised a Series C a year later at a $10B valuation, so on paper the earlier Series B investors have already made a 5x return.
3. On the other hand, in 2020, it was in retrospect a very risky idea to use public SaaS valuations as the benchmark of sensibility. As we all know now, valuations were way above historical norms, and came crashing down a few years later.

These days, Notion is probably in the same bucket as most of its peers who raised at huge valuations in 2021, and is struggling to grow into their $10B valuation. But I bet they comfortably clear the $2B bar. I think they will likely have staying power as a business and end up being a good investment for those Series B investors. That said, I should have been more aware of just how far out of whack public comps can be.