Don't Go Chasing Unicorns

We all know unicorns are mythical creatures, yet, in Silicon Valley, “unicorn mania” has been all the rage for the better part of the last decade.

Sure, the excitement of reaching $1 billion valuation -- for both the company executives and its investors -- is real, but it not only places a disproportionate level of risk on founders and teams to achieve this binary view of success, chasing that big money outcome as the only plan of record can have serious, and often fatal, consequences.

There’s a reason these companies are called unicorns: It’s statistically highly unlikely that any young business will grab the $1B ring. In the last 10 years (with eight of those in a very bullish market), the odds that a business will have a $500M exit -- if it even breaches a $100M exit value -- is about three percent (by our math) and the chances you’ll grow a horn and be wreathed in rainbows are about three-tenths of a percent.

To put that in real-world terms, that’s about the same odds my 15-year-old son has of being in the starting line-up for the Golden State Warriors.

And, while Silicon Valley talks a big game about breeding unicorns, it just doesn’t happen all that frequently and, even when it does, it’s not a surefire path to final glory. Right now, the little more than 300 unicorns that live in the Valley have yet to secure an exit and they’re burning cash at crazy rates.

Not only does chasing unicorns result in exceptionally high stakeholder expectations, it also fosters serious shareholder misalignment.

Seed and Series Z investors will have vastly different bases and, therefore, vastly different views of what constitutes the right investment posture for the business or what a win looks like in terms of exit (try selling your company at less than the last post-money value and tell us how that goes).

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If these three data points don’t convince you that tying the only definition of success and worse, your operating plan, on this on this statistically unlikely goal is a really bad idea, maybe this will:

Unicorn wannabes who pile on operating risk in their pursuit of greatness tend to be very sensitive to capital market fluctuations. That is, if the market sneezes, these unicorns are rushed to the ICU. With a high dependence on a steady drip of capital infusion (about every 18 months, if you look at the data) and the difficulty of raising significant amounts of capital -- at ever higher prices -- things can get very ugly very quickly.

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There’s a reason they say that most growth companies die of indigestion rather than starvation -- having an appetite for capital that is insatiable can be unhealthy and shorten the lifespan of any business. So what do we recommend instead?

First, focus on goals that are aspirational but achievable. Scale your sales team to the next level sensibly, which means proper role scoping, onboarding, and training. Complete a product extension that’s strategic to your business and encourages aftermarket sales and upsells rather than succumbing to “shiny object syndrome.” Hone the roles of your customer success and account management teams to a fine edge and invest meaningful cycles in developing strategic partners and building brand awareness. In short, knock out the 10,000 hours in every activity that will incrementally build your business instead of daydreaming about winning the Powerball.

Expert climbers note that when they scale the face of El Capitan at Yosemite, they look at the next handhold instead of the summit. The same is true when building a sustainable, long-term business--and when you follow this advice, the journey becomes something you can take pride in.