This was a very interesting week in tech, highlighted by a startup filing an S-1 as they plan for eventual IPO. While that alone rates as news with tech IPOs now few and far between, the interesting part of this S-1 was that it revealed that analysts were dramatically off on their revenue estimates and therefore market position for this startup.

What was interesting about this revelation was not just that the startup had failed to correct the Gartner analyst’s incorrect numbers, but they highlighted and used the report in marketing, sales presentations, and blog posts knowing the data was faulty. Yikes. How many customers thought they were buying the product of a segment leader, not a laggard with all the risk that it entails? How many new employees thought they were getting options and salary from a different company?

Technically I guess they weren’t lying. They were in effect saying “this is what analysts say our revenue is” not “this is what our revenue is.” Anyone at the startup who didn’t know the real numbers passed this data on innocently, but the net effect is the same. The executive team (and the venture capital firms that have invested that also are privy to the financials) on the other hand acted pretty unethically in my opinion. Smart customers and potential e mployees should be very wary about trusting anything that comes from them in the future, at this startup or elsewhere.

This Tech Bubble is Bad for Customers

A common trend in tech has been the decline of companies going public. More and more companies are getting more and more venture-backed funding on higher and higher valuations. Some point to the advantage of less onerous oversight and fickle investors, while investors like less tech volatility in the public markets. And with the startup culture now evolving to an “ends justifies the means” approach with lots of “fake it ‘till you make it” tactics seen as not only not unethical but actually positive. I’m sure this isn’t the only instance non-public startup engaging in dubious practices to influence customers and analysts.

The real losers are technology consumers. They now have to place their technology bets on companies that they really know little about. They used to at least have analysts to rely on, but as this Gartner debacle has shown, they too are being manipulated either intentionally or unintentionally. As a customer you need to be very careful trusting any of this information.

When Something Doesn’t Seem Right..

Before he retired, my father worked in the energy trading department of an electric utility. I remember something he told me right after the Enron scandal came to light. He was constantly scratching his head trying to figure out how Enron was making all this money when knowing the industry and their fundamentals it seemed impossible. It was almost a relief to him when their crimes were exposed because the world he knew began to make sense again.

Reading this S-1 brought a similar sense of relief to many in the industry. We saw numbers which were much more aligned with the reality we had been seeing— a much smaller company with good growth but a crazy burn rate.