In This Pandemic, Start-Ups Should Aspire to Be Camels Not Unicorns
For a long time, the entire ecosystem in Silicon Valley was about minting ‘unicorns’ that had massive growth and scale. Back in 2013, when the moniker was first coined, it was as rare as hen’s teeth for a start-up to reach a valuation of over US$1 billion. Only 39 companies had met the criteria. Six years later, the number grew to 452.
When Covid-19 hit last year, wreaking havoc on markets, many start-ups realised that using such a paragon of success as a benchmark would be impractical and unsustainable. Enter the camel, a different mascot, which is a term professor Alex Lazarow used in his book, “Out-Innovate: How Global Entrepreneurs—from Delhi to Detroit—Are Rewriting the Rules of Silicon Valley.” He describes these camel start-ups as adaptable and prudent, with a focus on strategic growth. Above all, they are resilient and have enough reserves to tide them over difficult periods. Move aside unicorns, camels are known to survive in the harshest of conditions and in this current climate, going the distance matters more. Here four strategies to ensure your business will remain recession-proof.
Don’t be over-reliant on venture capital
While an injection of capital can give companies a huge boost, camel start-ups prefer to be more self-sufficient first. If they raise funds, they only raise what they need, which gives the founders greater autonomy over the business and higher returns upon exit. Online research company Qualtrics utilised the company’s profits to fund its growth before getting VC funding, which eventually led to a US$8 billion acquisition by SAP. Similarly, Australian software company Atlassian raised only US$60 million—choosing sustainability over rapid expansion. Even Zoom, which has a market cap of approximately US$30 billion, had raised only US$146 million to scale its sales teams and expand its operations worldwide. Companies should aim to be profitable on their own first and as professor Lazarow concludes, “Venture capital can also be addictive. If companies get used to running on jet fuel, it becomes harder to switch to diesel.”
Always have a long-term view
Camel start-ups know that establishing a successful company is not a short-term endeavour, as sometimes breakthroughs tend to happen down the line. Hence, developing a sound business model and creating a product that resonates with customers should take precedence. It isn’t necessarily about being first-to-market either.
Having a long-term view will reduce the trade-off between growth and risk and cultivate resilience. Although a company may take longer to reach the exit stage, it will avoid negative cash flow. Camels opt for a balanced growth strategy where they invest only when a suitable opportunity arises and are able to withstand market disruptions. When reevaluating how to sustain your business, always set your sights far. So what if you have a billion-dollar valuation? You could crumble like a house of cards just like WeWork.
Spread your risk by diversifying
Don’t put all your eggs in one basket—keep multiple sources of revenue to minimise risk. Camels look to diversify their geography and product portfolio. Sujay Tyle, co-founder of Frontier Car Group, says, “We spread our risk across the world. We narrowed it originally to five markets which will serve as regional hubs. If they work, we will expand. If they don’t, we have a portfolio.” According to the Harvard Business Review, “highly diversified business groups can be particularly well suited to the institutional context in most developing countries.” In areas with limited capital markets, diversified players can consider cross-funding businesses to support other high-potential ventures. For example, if you have a car booking app like Grab, you could invest in other businesses (food delivery or concierge services) while the main show runs. This strategy helps to mitigate risk in one segment (should it fail) without compromising other aspects of the business.
Develop high-quality products
Offering free products or discounts may attract customers initially, but it may not be the best approach in the long run. Instead, charge your customers accordingly. Chicago-based food delivery startup Grubhub is an advocate of this. “I am building a business, not a hobby. Businesses make revenues, and hobbies don’t,” says co-founder Mike Evans. A successful entrepreneur knows that the price is a reflection of his quality and positioning in the market. Know your worth and have a product that stands out. Camels focus on improving the quality of their products, instead of subsidising their costs. In the wise words of Elon Musk, “make your product as awesome as possible.”