Gross Merchandise Value Is it a Mirage?

News alert in 2016.

CEO of S..pd..l — will no longer rely on Gross Merchandise Value, a proxy for sales — as its primary metric.

The cost of learning $1.2 billion (capital raised).

What took a CEO (and marquee investors) so long and so much money to learn? GMV is an imaginary number. Profit is also a balancing book entry. Like GMV, it has no connection with business health.

Entrepreneurs/CEOs must choose metrics carefully.

Amazon or Uber can rationalize growth with significant losses. This works only for 1% of the top 1% of fast-growing companies. For everyone else, it is a recipe for disaster.

Survivorship bias, looking at things that survive, leads to optimistic beliefs when failures are ignored, such as startups that no longer exist. It leads to ascribing a cause to a belief that successes have a special property (like GMV).

In the 2nd world war, a decision was to be made to reinforce bombers to reduce the damage of flak and enemy aircraft. It was decided to reinforce the areas where the bullet holes were of aircraft that came back safe. Until it was realized that if a plane made it back safely then the bullet holes weren’t dangerous. Armor was needed on the sections that had few bullet holes.