GMV: The New Ruse
Start-ups and Venture Capital funds alike have always cooperated in creating new business terms that allows them to evade the question of path to profitability. The latest such term: GMV.
BUSINESS ARTICLES & VIDEOS
Amr Rakha
2/29/20241 min read
In the last few years, the term GMV has been used to measure the performance of start-ups. What is GMV? It is "General Merchandise Value". Now how is that different from revenue? Well, the GMV includes the value of merchandise given out for free or at a discount, and also includes the value of returned merchandise!
So basically, if I give out free products or services as a start-up, I can report GMV 😂. What a joke! I have actually seen a start-up do exactly that, and secure funding accordingly.
If you're the kind of entrepreneur who wants to play the funding game regardless of value creation and setting up a viable business, then GMV is the right term for you!
The problem with GMV is that it does not translate to actual market validation. Giving out a product or service for free or at a discount does not at all predict the behavior of customers once they have to pay full price. Some would argue that GMV indicates how much the users can be "hooked", which means that once the full price tag is required, most of them would pay. Makes sense, right? Well, let’s take a case study we all know. What is a bigger hook than YouTube? We're all YouTube addicts and have been for years. However, YouTube has converted less than 3% of its active users to its premium services!
I would love it if entrepreneurs apply this 3% conversion rate to their GMV. No, I am ok if they apply 10% to their GMV, even 20%. Let's see what their business economics looks like after that! And let's see how many investors would run after them!
Please please please create Value, not Merchandise Value!
