In the last 3 years there have been a raft of new startups that are privately held and valued at over $1 Billion. They are referred to as Unicorns. Many have gone public as well – some are expected to be Winged Unicorns.
First, some context. There are over 434 Unicorns, which has increased from 85 in 2015. Of these about 50 have gone public (or merged, acquired) already leaving about 380+ still privately held.
Of these, about 15 have been “bad eggs”, or about 3%.
These include: a) Uber, b) Theranos, c) Zenefits, d) Away, e) WeWork, f) Thinx, g) Bouxtie, h) Luckin Coffee, i) Wirecard and others in the bitcoin realm.
Even if you assume there are others (not publicized) and that number is twice the known ones, there are 30 “challenged” companies in a list of 450, or roughly 6%. I will let you make the judgement on if that is too few or too many.
I started to look at the key issues that came consistently among all the companies and their founders via books written about these companies – Bad Blood, Super Pumped, Hatching Twitter and Cult of We. There are no public stories about Luckin Coffee yet and the Wirecard issue is still new. The book on WeWork – Billion dollar loser is going to be released on Oct 20, 2020.
Five themes emerge:
- Founders motivated to make “a billion dollars” than “right a wrong” or “solve a problem”. Travis, Adam (founder of WeWork) and Elizabeth have been profiled from when they were young to be driven by money alone. In fact, when she was 5 years old, Elizabeth said “I want to have a billion dollars” when I grow up. She did not care how she got the billion dollars.
- Being young is an advantage, but lack of balance or wisdom is a huge detriment. Except in one case, the founders were young, between 20 and 30 years of age. While they were incredibly motivated, they also seem very one dimensional, i.e. focused only on what they cared about most at the cost of all else.
- Founder worship is a pendulum that has swung too far in one direction. The press and media (investors, entrepreneurs and the general public), have gone from being cheerleaders of successful entrepreneurs to devotees of the founders. Nothing that the founder can do seems to be wrong. These founders themselves were using Steve Jobs (for Elizabeth at Theraons) and Jeff Bezos (for Travis at Uber) as their role models. From the books it was clear that they took it too far, not understanding the person behind the person, instead only looking at other reported news or images and videos.
- Growth at all costs is a huge red herring. In all these cases, when growth (either in revenues, customer acquisitions, user adoption, etc.) stalled, growth hacking techniques were adopted, and some proverbial lines were crossed. When they could not show real growth, fake orders, revenues and customers (Luckin) were portrayed.
- Investors have a big part to play in this game as well. Unrealistic projections are “normal”. If you don’t have “hockey stick” growth or “eye popping numbers”, founders are pushed to get there. This is winner take all gone bad.
The next question is what can we do about this in the near term?
First, being a good sounding board as a partner, member of advisors or mentor will help. Providing guidance to founders on ethical and moral issues to ensure they dont “flip the switch” will help. The guidance is to help balance the founder(s).
Second, most people working with startups understand there are many ups and downs. If there is an expectation that every quarter or month has to be “up and to the right”, then that creates unnecessary and artificial constraints that cause the most stress. Growth is important, but “at all costs” – is not.
Third, as an investor (or advisor, mentor) being a cheerleader on Twitter, LinkedIn is important, but it is also critical to be constructively critical about areas that need development – for the founder on a personal basis.
I am sure there are other many more actionable ideas on this topic, and a few “blots” on an otherwise clean and positive development (Growth of Unicorns) are bound to be around.