What Corporates can Learn from the Unicorns
When it comes to big startup valuations there are basically two camps. Wide eyed evangelists speak of a new golden age fuelled by big tech — drones, AI and voice control apps creating overnight billionaires and slaying corporate dragons. Tech innovators will change the world in short order whether we like it or not, the story goes.
Nonsense scream the men in the pinstripe suits. These are paper valuations, they insist, not backed up by the “true science” tested in public markets, and the bubble will burst throwing beardy, plaid-clad con-artists back to the doldrums where they belong.
The debate on valuations, though interesting, is somewhat beside the point. The billion dollar mark, when a private tech company earns its “unicorn” stripes, is useful mainly as a historical benchmark, a benchmark best understood in relation to the questions “how many” and “how fast.” The fact is more companies than ever are powering across the billion dollar mark. As of March 2017, there are a record number of unicorns — 186, compared with 146 at the end of 2015. Moreover, the speed at which these companies are going from 0–60 and achieving billion dollar valuations is accelerating. An analysis of a sample of 40 of the more B2B focused unicorns found that the average time to reach a $1bn valuation was 7.2 years, but for those firms formed after 2010 the duration shrinks to 3.8 years.
What the rise of the Unicorns means
The speed and size of the unicorns implies a number of things are changing. Relative to their ancestors, today’s unicorns are more adept at finding markets and building relationships with customers. Mindsets have also changed in enterprises - with a willingness to buy from a multitude of vendors, and to move tech out of the dark caves of the back office. Startups are now more effective of cracking the scaling question- and are finding clever hacks to do so at pace using platforms, APIs and microservices. With some notable exceptions startups are also getting better at solving the more people-focused elements of scaling — ensuring access to functional expertise, and working with experienced, high powered boards.
There is also evidence to suggest that VCs have learned their lessons. Strong business fundamentals are the targets for investments — not just the viral growth metrics from 15 years ago — and the increased participation of pension funds in VC markets is at least a tangential sign that lessons have been learned.
But what does this mean for corporates?
Naturally the relatively sudden emergence of cash-rich, totally private innovators is attracting questions and attention. Disruption is a term that is running close to meaningless in current usage. Nonetheless you don’t need superhuman powers of observation to see the panic hitting certain industries — exits, sudden loss of share, unexpected new market powers and execs grasping to understand the significance of sudden innovations. In other industries more prosaic but persistent changes are gradually altering the landscape. Industry boundaries are blurring, as can be seen by Uber and Lyft entering home delivery, automotive and even medical industries. New business models, like subscription and “as a service”, reset expectations in the marketplace in areas as diverse as collaboration software (Slack), facilities and premises management (WeWork) and Groceries (HelloFresh). Other unicorns have created entirely new ecosystems using their platforms or infrastructure, by-passing traditional barriers of entry altogether. Stripe has grown exponentially by working with Lyft, Slack, Deliveroo and other vendors to customise and scale payments solutions that can grow and change as their business customers evolve.
Underpinning all of these changes is speed. Extreme pace has long been the enemy. Corporate incumbents have survived by being slow and steady, focusing on getting things right, having a steady hand at the wheel and avoiding impulsive, risky bets at all cost. Today, a lack of pace is the greatest risk of all. The speed at which digitally enabled startups have reshaped industries is the fundamental difference between now and the predominant thinking of just a few years past.
So…what should corporates do?
Identifying when and where the next threat will come from can be an exhausting and resource-intense activity, and even then it’s impossible to watch everything. Corporates would instead by wise to become more unicorn-like — dispense with some of the traditional received wisdom and make some bets of their own.
First of all, big corporates need to expect to be wrong-footed, and focus on their ability to react. Given the in-built advantages of an incumbent, moving quickly and decisively may snuff out many would-be challengers. It is essential, nonetheless, to stick the principle that speed is all, and that you can’t rely on your size.
Nor can you rely on your products or services alone. Customer want outcomes that go beyond the product. To put it a different way, if a customer wants a drilled hole, help them drill a hole. Don’t give them 60 different bits and pieces that if assembled in just the right way might be able to help. This is what Lyft and Uber are doing in transport — get me from A to B, I don’t care about the carriage.
Corporates also need to act and feel less complex. No customer wants to be led through an asinine series of pointless steps because its the way your internal process has been configured. Think of how easy it is to order food on Deliveroo or Blue Apron relative to finding basic information on a procurement vendor — or your taxes. In an era where the premium people put on their time is huge, get rid of the mundane, focus on convenience and try and put a smile on your customer’s face as often as possible (and without being creepy).
And don’t forget to give them more for less. If a customer can achieve multiple things while dealing with you, then all the better. Go to market plans with partners are clever. Platform ecosystems are better — especially when relationships between sellers and vendors grow stronger with network effects. We all know about Amazon and Pinterest, but tractor manufacturer John Deere has managed it too. Some clever solutions providers are also allowing 3rd party developers to build apps and integrations on to their core product to provide customers with a wider range of tools or services. Slack, Domo, Salesforce, Spotify and Dropbox are all playing with this convergence of Saas and Paas business models. There is no reason why corporates can use digital channels to similarly play with others.
How should corporates go about this change?
Big change is never easy. Investment is tight and managers will be under sustained pressure to justify change to increasingly activist public markets. Startup culture provides interesting lessons and provocations to help move corporates beyond principles and practices that are slowing them down.
It starts with focusing on what really matters. If internal rules and stipulations are stopping you from serving your customers when, where and how they want, then tear them up. This goes for all your customers — but especially for highest value customers. Find out what they like, and don’t like, about you focus relentlessly on delivering what they want, and never compromise on your customers. If you do, sooner or later someone else will take your customers away.
Whatever you do, you should also do it quickly. Repeat — speed is more important for accuracy. Get the next product / service / innovation out as fast as possible and sample customer reactions. Build and innovate on the fly and hack your way to growth. Obtain the right skills mix, whether it be agile or something else, in order to allow you achieve this.
Focusing on what the customer wants also means rewiring your hierarchy. This means moving away from organising around a process and instead organsing around issues and products. Having cross functional teams means the full innovation toolkit is assembled and ready to build, test and launch as close to the customer as they need to be. And don’t make a team wait for a sign-off for the latest idea — empower and trust them to come up your next killer app, product or business model.
Finally, don’t forget your partners. When it comes to an ecosystem, more is more. The more channels, tools, capabilities, technology and markets you have access to the more opportunities you have to grow, learn and innovate. Of course this requires careful curation, governance and boundary setting. But a heavy-weight JV framework is not the answer. Clear, lightweight alignment of principles, collaborative technology and working environments will help manage partners better. And techniques as diverse as venturing, digital partnering, open platforms and incubation (or all of the above) provide the right openings.
In short, corporates have much to learn from startups, and startup culture. Unicorns may or may not end up replacing many of today’s largest incumbents, but the pace of change is certainly not going to slow. As digital innovation moves from the world of information, to the physical world, there is reason to believe that recent disruptions will be dwarfed by sweeping, cross industry threats. When figuring out how to survive and thrive in the emerging technology landscape, incumbent corporates would be well served by learning from the unicorns.