The valuations that companies raised at in 2021 were largely divorced from reality. Businesses that had achieved very little in terms of revenue, product depth, or customer buy-in were being valued at more than $1 billion. In large part, this was due to the potential size of public market outcomes. Public companies that had achieved revenue, product depth, and customer-buy were being valued at 50x their current revenue.
But as those public comparables came crashing down, private companies were left scrambling to justify their exorbitant valuations. For many of the businesses that will be successful in doing so, the answer will come from platform potential.
If a product offers one specific feature, or “job-to-be-done” for the customer, it can only become so big. There are only so many users, and there is only so much budget for that one piece of functionality. Expansion comes from a broader product platform. Companies like GitLab, Datadog, and Atlassian have built out expansive product suites.
One example to watch going forward is Figma. Since launching in 2012, the company has been primarily focused on product designers. The initial platform focused on visual design, prototyping, and collaborative editing. One of the biggest concerns many investors had about Figma’s potential was that there are only ~500K designers globally, compared to a category like software development where there are 26.9 million.
In June 2023, Figma announced Dev Mode. In that announcement, the company shared that more developers visit Figma than designers because they have to use the designs in coding a product. Dev Mode gives Figma users a more purpose-built tool for developers. This also enables Figma to more deeply serve developers, and potentially increase revenue per customer as the platform becomes more valuable.
The question, now, for companies like Figma, is how much can they broaden their product suites and better serve new subsets of users? Any company that raised at a meaningful valuation multiple will have to justify where the sources of future growth potential will come from. Where will their platforms go from here?
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