When a donkey beats a horse

Unicorns used to be rare, mystical creatures. These days, unicorns are everywhere, an invasive species pushing out the local fauna like pythons in Florida Everglades. A unicorn, defined as a private company valued at more than $1 billion by people way smarter than you and me, grows by leaps and bounds, often swallowing old-time alternatives whole. Until it doesn’t.

More than 580 new unicorn companies were formed in 2021 alone, and there were more than 1,230 active unicorns as of Nov. 1, 2022. Yet, every day in 2023, another Unicorn announces layoffs. Even my favorite platform, Gong, just fired 7% of its workforce.

Of course, large tech companies lay off many more people. But, as the job market goes, when an employee of a large company jumps ship to a unicorn, or a new graduate gets an offer from one, it is based on the excitement of growth. Implicitly, we want to believe that the evaluation by people, way smarter than you and me, and that poor fella who accepted the job offer, are based on a realistic competitive strategy. We assume, often incorrectly, that these people, way smarter than you and me, take into account the inevitable fact that for 99% of startups, explosive growth may not continue indefinitely. Moreover, they do have a subscription to an analysis service telling them for the past 2-10 years that the drunken party of free money with no interest is about to be over, and that the Fed will have to bring about a slowdown.

?I can’t blame CI managers for moving to startups, though when they ask me what I think, I always warn them to do the competitive assessment on their own (using the models we teach at the Academy) and not rely on a press filled with happy news of boundless expansion, rounds of financing at cosmological values, and Gartner’s vision status.

The announcement of layoffs is always along the line of a “necessary step to address the challenges we face today.” I wonder if all these firms employ the same PR company. That PR company is probably also a unicorn. The reasons for the layoffs are clear: preserve cash. But what is less clear is how such promising, breakthrough startups being valued by the smartest investors on the planet expand too fast as if conditions tomorrow will be, inevitably, as good as today. ?

?I personally prefer an ass

The dilemma facing an entrepreneurial team leading a unicorn is not trivial. When presented with exploding demand and inability or unwillingness to leave money on the table, most startups will go for the scale-up mantra. In that phase, they expand like fire in California, hire more people than they can remember by name (but they are still one big happy family), and then when these talented, high achieving, hardworking, talented (yes, I know I already said it), are let go, does it mean the company doesn’t need that talent? Was talent not enough? What is talent exactly?

?I personally prefer an ass to a unicorn. (An ass is a donkey– for those who think I meant something else). A donkey is one of the most intelligent, underappreciated animals on earth. It works hard, often in substandard conditions and meager lunches, doesn’t have a cult-like group of employees and doesn’t flood LinkedIn with celebration posts of incredible achievements and awards just to deflate as quickly come harder times. Even the Chinese balloon inflated slower than some unicorns. How can this be?

So either the underlying unicorny idea wasn’t as vital to the world as originally sold, or the addressable market undressed, or the exuberance of being valued as a unicorn blurred a realistic view from the 25th floor of the new, shiny, office building. Either way, it’s a pity. Somehow the concept of stability gets lost in the race for quick dominance promised to the group of famous VCs.

Alternative perspective

?Growth is seductive. Growth is ego-boosting. I am not sure what I would have done if investors came to me with an offer of $100 million (OK, that’s a lie, I do know) so I am not judging. In the end, it’s a matter of culture. Silicon Valley is a world on its own, just like Disneyland. In contrast, it seems German tech companies are way more conservative on expansion and as a result, don’t find themselves in need to thank deeply the “great team” they used to employ just a week ago.

Of course, not all unicorns are in trouble. Via, an Israeli startup founded in 2012, just raised 100 million on a valuation of $3.5 billion. The company started as very low-tech, offering transport with few vans in NYC, but changed tack to provide software for the management of public transportation. The company didn’t lay off anyone and is still hiring. The main reason for the bright future in this bleak landscape? Biden’s $1.7 trillion IRA (inflation Rebounding Act) flooding the market with “free” money. When money flows freely from the government, Unicorns are the horse to ride.

Yeehaw!

Before you accept a job offer from a startup, do a competitive assessment. To learn to do competitive assessment like a pro, join me in our March, CIP-I (virtual) program. Special discount for famous VCs applies. www.academyci.com