THE CURSE OF THE UNICORN
So you want to catch a UNICORN? It’s the goal of many FOUNDERS. But taming a MAGICAL START-UP can come at a cost, warn experts.
what does it take to become the world’s next rare billion-dollar company?
It really doesn’t matter to me whatsoever.” This is what Joshua Reeves, CEO of online HR services company Gusto, said when the company he co-founded smashed the US$1 billion mark. He’s not the only founder who has downplayed unicorn status. “While it’s nice, [the $1 billion valuation] doesn’t change the way we operate day-to-day,” confides Adi Tatarko, CEO of homeinspiration website Houzz. “It’s still a rollercoaster ride with a lot of hard work.”
In the start-up world, ‘unicorn’ is the nickname given to those rare companies that have hit maximum pay-dirt by reaching a $1 billion-plus valuation. Big money, big investors, big success: unicorns seem to have it made. Which is why becoming a unicorn is what every founder strives for. Isn’t it?
While few people would grumble about having a dozen zeroes to call on, the truth for most unicorn founders is that a billion-dollar bank balance is a by-product of success, not an aim in itself. And hitting the big-time doesn’t automatically equal Ferrari commutes, two-hour workdays and taking monthly vacations on a yacht in Majorca.
In fact, if anything, getting to unicorn levels means more work, not less. Your mission to ‘catch’ a unicorn could end in crushing disappointment, unrealistic expectations and burnout, warn experts.
“In Australia, you would be looking at only a small handful [of unicorns] – that would be the likes of Atlassian and Campaign Monitor,” says Australian entrepreneur Alexandra Tselios, CEO and founder of opinion platform The Big Smoke. “However, I don’t think start-ups should be focusing on that outcome. Instead, you should be trying to build long-term sustainable companies that add value to your customers and your industry, rather than valuations and VC pitching to a landscape that often, quite frankly, just doesn’t get it.”
Atlassian and Campaign Monitor are the exception, not the rule, Alexandra argues. Atlassian is the software company that was famously financed with just AU$10,000 in credit card debt by founders Mike CannonBrookes and Scott Farquhar in 2002. In December, 2015, it made its initial public offering (IPO) on the Nasdaq stock exchange. Its current market capitalisation is just over US$10 billion.
Meanwhile, Campaign Monitor began life as a side-hustle for Sydney founders Ben Richardson and Dave Greiner back in 2004, when they first established the intuitive email marketing platform in a garage. In 2017, the company raised US$250 million from New York venture capital firm Insight Venture Partners.
If you do have your sights set on a unicorn, health-tech is one of our biggest opportunities in Australia, says Jenny Vandyke, managing director of Startup Adelaide.
“Health, aged care and disability are all fast-growing industries,” she says. “We’re seeing a lot of great products coming through, like 3D imaging with VoxieBox, computer vision with Life Whisperer using AI to improve IVF success rates, and virtual reality stroke rehabilitation with Add Life Tech – all Australian-based start-ups with international potential.”
In 2017, 57 companies were named unicorns globally and seven ‘lost their horns’, according to data from venture capital tracker PitchBook. The downturners included The Honest Company and Prosper, which both saw their valuations sink in funding rounds, as well as Souq.com, which was acquired by Amazon for ‘only’ US$650 million.
This leaves 227 active unicorns still out there, according to PitchBook’s data. It’s expected that, in 2018, newcomers will replace the relegated. >
It’s STILL a ROLLERCOASTER ride with a LOT of HARD work.
According to the Crunchbase Unicorn Leaderboard, the majority of entrants to the billion-dollar-valuation list come from either the United States or China. Four new unicorns are expected to be ‘born’ in 2018, and Australia has already produced one – Canva. However, business marketing consultant and mentor Jill Brennan from Harbren Marketing suggests that we could benefit more by trying to learn from them, not trying to emulate them.
“Unicorns are phenomenons that benefited from a confluence of right time, right place, right people to pull it together, and the technology to make it all happen,” she says. “And while I don’t think it’s worth the average business owner trying to imitate these businesses and expecting that kind of world domination, there are key lessons that can be drawn from how they operate.” Her advice: it’s crucial to put your customers in the driver’s seat. “One thing that a business of any size can learn from these supernovas is the way customers, and what they want, are woven into the way they operate,” Jill says. “They are responsive to, and rely on, customers having a voice. This effectively makes them businesses by the people and for the people.”
Businesses can also fall into the trap of focusing on their product or service without paying due attention to the problem they’re actively solving for their target market.
“Facebook helps people connect, no matter where they are physically located. This has proven to be very popular and sticky with around 1.7 billion active users in the second quarter of 2016,” says Jill.
I don’t think it’s WORTH the AVERAGE business owner expecting that kind of WORLD domination.
“But what Facebook makes money from, and what they’re really selling, is access to those users. By being clear about what they’re selling, the focus stays on what will make their offer more appealing and enhance it further.”
And if after all is said and done, you still have your eye on the unicorn prize?
“Well, I think you’ve got to be careful what you wish for,” warns Jenny. “As founders, it’s important as a team to be clear on what success looks like – what kind of life do you want to live? Deep down, not every founder really wants to run a billion-dollar company. Not every start-up has what it takes to become a unicorn, and that’s okay. If, for every Atlassian, we create ten $100 million start-ups, and a hundred $10 million dollar start-ups, that’s a lot of jobs and a lot of fuel for the economy – with faster returns and lower risk.”