For every legendary unicorn like Airbnb or Binance, there are thousands of startups that never reach such lofty heights. Often the entrepreneurs who launch them are simply aiming their sights much lower. A company that makes niche products, or provides services within a limited region, for example, likely does not even aspire to achieve unicorn status.
In other cases, however, the highest levels of success remain out of reach despite the best efforts of entrepreneurs and their teams. Moreover, the reason for stalled business growth is often unrelated to business fundamentals like product quality, customer interest, market access, and organizational efficiency. Among other factors, their ability to understand and execute on key financial issues often makes the difference between companies that reach middling levels of success, and those that become legends in their field.
Near misses
Unicorns are privately held companies, often in the tech industry, whose value exceeds US$1 billion. The business world has begun referring to their less successful peers as ‘punycorns’ — startups that never quite reached the top level of success, ultimately failing to sustain growth or reach their potential.
Many of these companies have, at one time or another, been valued in the hundreds of millions of dollars, only to see their successes crash and recede like waves on a beach. Others achieved unicorn status, only to subsequently lose it or suffer severe devaluation following a failure to deliver on their initial promise.
Examples are numerous, and often follow a familiar pattern.
- Japanese software company EcoNaviSta, which uses AI to analyze sleep and health patterns, experienced significant growth upon its initial public offering — but subsequently saw its market value plummet by 60%.
- Snap Inc., the parent company of Snapchat, went public in March 2017 at an initial valuation of $24 billion. Since then, its stock price fell 60% within 18 months.
- Blue Apron, a meal-kit delivery company, went public in June 2017 with a valuation of $1.9 billion. In less than 2 years, its stock price fell by over 90%. The company was ultimately sold in 2023 for just $103 million.
Understanding the reasons for this phenomenon is crucial, as they shed light on the complex world of startups, the challenges they face, and their implications for innovation in the business landscape.
Recipes for success
A lot has to go right for a startup to reach a value of $1 billion. As the Financial Times puts it, “these beasts are generated and nurtured … through ever more daring rounds of VC investment, an underlying appetite for disruption, consensual destruction and reinvention where necessary and, most fundamentally, of sky-high aspirations for the scale of the business.”
The common thread in these concepts is a certain fearlessness — the courage and commitment to take big swings and fail often on the way to ultimate success.
Entrepreneurs would be wise to take the concept of company valuation literally: How much value does their business truly add to the world? Making a slightly cheaper or better widget may be lucrative in the short term, but competitors will soon replicate your formula and erase your market advantage, as in the corporate examples highlighted above. On the other hand, disrupting a stagnant industry, or inventing an entirely new kind of product, can send shock waves through the economy and give your company a long runway for rapid growth.
The enemy within
Complacency, hesitation, and a risk-averse mindset are common, self-imposed obstacles that get in the way of such success. Bemoaning the lack of ambition among a certain class of entrepreneurs, the Financial Times writes, “a company’s journey should begin in earnest when it does an IPO; too often … the journey ends with the IPO.” The problem is that “their founders … appear content to emerge as millionaires rather than billionaires.“
Cultural norms in Asia also push entrepreneurs and their teams to seek comfort in familiar spaces rather than make heavy bets on unproven ideas. But unicorn status is reserved for companies that push the envelope in new directions, as copying old ideas simply will not generate excitement among investors.
What investors want
Treat your investors well and they’ll treat you well. Aim for frequent, transparent communication based on facts and realistic expectations. Share your long-term vision, and stress your commitment to innovation and adaptation as circumstances warrant.
Many investors also want to be included in important company decisions. Try to treat their interest as a resource rather than a headache. Seasoned investors have seen dozens of companies pass through the stages that your startup may be experiencing right now. They may be able to offer key insights on strategy as well as how to push forward through tricky operational periods.
Last but not least, entrepreneurs should familiarize themselves with the world of investment, and learn to follow its rules. Make connections across the VC ecosystem, prepare diligently for each round of funding, and respect the emphasis that investors place on consistent revenue streams.
Investor relationships may feel like a distraction from the nuts and bolts of running a business, but that is all the more reason to play their game. Happy investors will keep the money coming in, and refrain from meddling in your business operations. Frustrated investors will be much more involved in your operations, and insistent on imposing their way of doing things. If you want freedom, keep the money happy.
Combining these tips and guidelines is no easy task, and it is the rare entrepreneur who can apply them to a genuinely great business idea, then execute on its promise. Then again, if highly disruptive startups were easy to build, we wouldn’t call them unicorns.
Every economy has leaders and followers, and some punycorns are comfortable living in the shadow of their highly-driven peers. But for the most ambitious startups — the ones that want to build tomorrow’s economy — success will be the product of rapid innovation powered by solid investor relationships.
