How to Face Down a Unicorn

It’s now a weekly occurrence. Headline: “XXX takes on additional funding of YYY Millions, latest to reach Unicorn status.” I’m challenged to think of an industry where there isn’t at least one of these formerly mystical companies cropping up.

If you’re one of these companies, reaching unicorn status brings many benefits, including:

• “Halo” of viability – always an asset as a startup with established competitors
• Large platform to tout competitive differentiation given media’s focus on this phenomenon
• Public and visible customer validation – reviewing the coverage, most pieces include large customer names. Why? They are making the exception and want to be associated with cutting edge tech that is well funded vs. usually their usual spurring of smaller startups.

Interestingly, many of these companies will also find themselves on the Exponential Organizations radar. If you’re unfamiliar, Exponential Organizations are ones that are structured from the ground up to approach challenges with openness and lack of limiting hierarchy, focused on massive scale opportunities, and leverage existing systems and services that limits CAPEX and OPEX (e.g. no hardware via the cloud, or full-time employees like Uber, or residencies like Air BnB). Given the 10X growth expectation that comes with being defined as an Exponential Organization, we will likely see more of these getting even more funding. An interesting list based on what’s called an ExQ score can be found here: http://top100.exponentialorgs.com/

It seems a forgone conclusion that unless you are a nimble, virtual startup leveraging a mix of part time workers, the cloud, or both, you’re likely facing or will have to compete against a unicorn someday soon.

Don’t throw your hands up in despair! There is a dark side to being a unicorn. With the white hot spotlight comes expectations – from the media, from the investors and from customers. Are you generating new features of your service or technology fast enough? What’s your burn rate and how will you make up the overhang from the leverage you took on? Where are the new customers? There’s some very detailed pieces the past few months that clearly show how expectations can warp strategy and leave founders on the outside looking in or much worse for wear.

So, what’s the playbook against a unicorn?

For startups, one simple strategy is to take the counter position – define the advantages in not being a unicorn. All that money comes with strings that don’t get pulled on you - you avoid the undue sales pressure; the artificial sales and marketing ramp pressure; the VC overhang that forces you to change direction from your vision. You can lay out a clear picture of why there is no shame in staying lean, getting customers, and focusing on profitability. Knowing your risk on valuation, thinking long term, getting the right VC partners who can consult vs. pressure – that sounds like a smart business leader vs. a gold rush entrepreneur. That doesn’t mean there won’t be pressure – its inherent in startups. But why complicate it to satisfy someone else’s financial goals?

For public companies, it’s an interesting duality. Many Fortune 500’s have their own investment arms that are in some instances fueling future unicorns. In this case you can talk about how you funding innovation without distracting from your core mission. However the more solid ground is talking about intrapraneurship and internal start up divisions (done well here by Adam Cahan of Yahoo in Fortune.) Show how your financial bearing can put you in a position to fully develop products and services that integrate with the enterprise and partner ecosystem, nuances a distracted unicorn can’t fully appreciate or explore. As a public company you have much better access and ability to publicly leverage customers – do it regularly and aggressively. And if possible show how you’ve weathered storms and are positioned for future growth – John Chambers did just this during his last quarterly earnings call, showcasing despite rumors of its eminent demise Cisco is poised to not just survive, but thrive.

Lastly, there has been a growing discussion in the market at large from public company CEOs about the undue pressure the quarter to quarter reality puts on companies. This has translated into fewer jobs, less wages and less public engagement, detailed very clearly here by Bruce Bartlett. Both startups and public companies fit into this narrative – without additional external pressures, businesses might be able to invest more in people and innovation that scales – just not at hyper-internet speed.

To be clear, VC funding isn’t inherently bad at all – quite the opposite in fact. It’s like most things in life, too much of a good thing can be detrimental to the short and long term health of an organization. Expectations and growth are good, just not at the cost of the business in question. It will be interesting to watch and see where the unicorn alumni group is in 2-3 years. In the meantime, there’s competition to be had!

Derek LyonsVice President

[cta]