Why Tech Firms Will Focus on Profitability Over Growth in 2020

WeWork’s crash last year was a sign of what is to come for technology companies. Venture capital funds—whether due to WeWork, the handful or failed tech IPOs in 2019 or simply changing market trends—will now want evidence of profitability, not just growth and market share. This is a turnaround for tech companies, which have focused on rapid growth and expansion first.

“Venture capital will no longer fund these continuous losses any more. They will stop funding these companies until they see a path to profitability,” David Shulman, senior economist for the Ziman Center and UCLA Anderson Forecast, tells GlobeSt.com. “Tech firms will have to go for profitability as opposed to just going for growth.”

Last year, several tech companies, like Uber, for example, in addition to WeWork, launched unsuccessful IPOs. These showed a weakness in the market, and as a result, tech firms are going to need to switch strategies. “The market isn’t going to accept losses forever. You are going to need to show a path to profitability,” says Shulman. “That means slowing down growth as profitability becomes more important.”