There's a connection between how you choose to grow, and how defensible your business is from competition. Just like it's easy to throw gasoline on a fire to get it going with a boom, it's stoking the coal that produces all the heat in the long-run.
Paul Bennetts looked at how Etsy grew to draw this distinction:
At the IPO of a company, it’s easy to anchor on just valuation but its more useful to focus how it will throw off cash and how defensible is its earnings stream. In the long run, competition will always drive down returns on equity unless they are defensible.
The majority of Etsy’s GMS (gross market sales) is generated from an organic marketing channel. That is, in CY2014, 93% of site traffic came from direct, organic and email traffic sources (6% from email), with only 7% from paid traffic.
The majority of Etsy’s GMS is generated from repeat purchases. Incredibly, in 2014, 78% of purchases were from repeat customers. If a business is driven by paid marketing - this KPI would typicaly by flipped, in that 78% of customers in a given year would be first time customers.
Both show very high growth but only one is defensible.
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