Unicorns aren’t real: Four things humanitarian innovators need to unlearn from the private sector (part 1)
‘We need to learn from the private sector’ is a message I have heard repeatedly in a decade of working with and for NGOs in different social sectors around the world. There’s an implication that commercial approaches to leading organisations can be replicated in the social space, but the nuance of what exactly we should be learning or replicating is often unclear. Here, I look to challenge the often simplistic narrative that can dominate conversations about innovation success stories from the private sector, followed by a second blog Platypuses Are Real, which identifies some more relevant lessons for humanitarian innovators.
As most of us in the humanitarian sector would recognise, the idea that NGO leaders are less savvy than their private sector counterparts does not ring true. Leaders of humanitarian organisations have exceptionally complex roles that demand extremely high levels of financial and public scrutiny, and responsibility for staff and partners working in volatile, sometimes dangerous environments. And this is before you consider the challenge of delivering on their humanitarian purpose.
The areas requiring greatest improvement in our sector are not, based on my experiences, typically areas where we can learn from the private sector: localisation; accountability; greening aid; navigating the development, peace and humanitarian nexus; or tackling colonialism and racism.
The spectre of Silicon Valley
The success — and perceived success — of start-ups in Silicon Valley have created often unhelpful expectations for innovations teams working in the humanitarian and other social sectors. Here, I’m dismantling four ‘false lessons’ we need to unlearn.
False lesson #1: the journey to scale is always propelled by track record, profits, and a sound potential business model.
Being some of the best known ‘innovative’ companies, Silicon Valley type unicorns (start-ups with a value surpassing $1 billion) are sometimes seen as beacons of inspiration for humanitarian innovators.
Whether coming from disruptive start-ups or from within established aid agencies or businesses, innovators are often in search of rapid growth or uptake and are invariably in search of the sustainable model. Most unicorns, frequently our go-to examples of innovations that have successfully scaled, have achieved rapid growth — but often without first establishing a sustainable model.
It’s also worth considering how a start-up could possibly be worth that much. To quote a 2015 Bloomberg article: “Here’s the secret to how Silicon Valley calculates the value of its hottest companies: The numbers are sort of made-up.” Unicorns aren’t really real.
False lesson #2: the journey to scale is always funded by sales or ‘self-generated revenue’.
Tech firms are frequently sustained for long periods of time on cash generated by massive investment from venture capitalists (VCs) taking a risk on the potential for future profit. Investors can be patient, not expecting companies to rapidly become ‘self-sustaining’ (to use NGO parlance).
As of June 2021, Facebook was valued at $1 trillion. Founded in 2004, it didn’t turn a profit until 2009 — when it hit 300 million users. Even then, still only on the cusp of making a profit, investors were willing to value it at $6.5 billion. There are always questions about whether Uber can ever be profitable, which it has never been despite its $50 billion valuation .
This gap between actual profit and perceived value, investment in profit potential, and willingness to take financial risks is unrecognisable in the not-for profit space. To state the obvious, VC investments are made with the possibility of massive financial reward. Therefore, it’s unlikely finance will ever be available for social innovations in such an optimistic or speculative way. But it does underline the double standard created when we criticise social sector innovators for their reliance on grant funding.
False lesson #3: if an innovation works and addresses a need, it will scale quickly and easily.
AirBnB is often pointed to as an innovative platform whose model could be copied and adapted to solve a range of humanitarian issues, from matching refugees and host communities with employment opportunities, to creating online marketplaces for communities affected by crises. AirBnB was part of the Y Combinator programme — a prestigious start up accelerator based in Silicon Valley with an exceptional track record — and secured $600,000 in seed funding from high-profile VC Sequoia Capital early in its scaling journey. This is a level of financial and non-financial support that would raise expectations of sector domination in the humanitarian space. But it took AirBnB eight years to turn its first profit in 2016 (which is rare for a unicorn). At that point it had 2 million listings in more than 34,000 cities globally. It also required multiple experiments and significant pivots to the company’s value proposition and business model required to find the one that works.
AirBnB and Facebook both had to reach vast scale and market supremacy before attaining a ‘sustainable business model’. This isn’t a replicable approach for humanitarian innovations. And despite a wide acceptance that scaling innovation takes time, the sector’s impatience for positive change means we’re still underestimating the pathways to sustainability.
False lesson #4: digital business models are free.
The final lesson for the sector to unlearn is from the digital giants. At face value, operating models for many digital services are considered low-cost because access to the service is free to the end user. But digital platform businesses are not cheap to operate, and someone must pay. Facebook, Google and others make their money through advertising. They sell user data, and even well-informed users have little idea where their data ends up. It could be argued that there’s no such thing as informed consent in the digital economy as it currently operates. Whatever your view on data consent (a particularly active debate in the humanitarian sector, just take a look here, here and here), selling data is not a business model that can be implemented ethically in the humanitarian sector. Humanitarian response demands transparency about both data and funding flows, neither of which are found in the models of the biggest digital platforms.
Where does all this leave innovators who are looking to transform an innovation into a success at scale? Though cathartic to share these lessons, this blog doesn’t offer the practical advice for innovators who do want to learn from the private sector. The second part of this blog, Platypuses Are Real, aims to do just that…
