Cracks in Unicorns — Why Corporate Innovators Should Take Heart

It is now 8 years since Marc Andreessen penned his famous essay “Why Software is Eating the World” in The Wall Street Journal. Since this time, tech titans have continued to grow like weeds through their “blitzscaling” strategy and the “uberification” of everything.

Non-traditional tech companies have raced to start thinking and acting like software companies as they have watched their positions as the most valuable companies in the world be toppled by the likes of Apple, Amazon, Microsoft, Alphabet, and Facebook. Yes, that’s right — there is not a single oil or gas giant left in the global top 5 in 2019. Today, there are estimated to be 310 unicorns in the world — not exactly the rarity that originally gave them their name in 2013.

However, whilst it is natural and right to fight for survival in an age of disruption, it has proved difficult for many more traditional corporates to both reimagine their industries and view themselves as a startup might. And, even if they do have a clear digital vision of the future, it is also tough and impractical for many to make this transition to a software-driven organization. So, how do corporations adapt?

The Reality of Unicorns

UBS dubbed 2019 the Year of the Unicorn with Tradeweb, Lyft, Uber, and Pinterest all achieving mega IPOs to date. For the remainder of the year, and with a favorable wind, we can anticipate a further 100 tech unicorns to go public. As shareholders increasingly diversify into these newly public companies, it may well feel like times have never been tougher for the established corporates.

However, you don’t have to look too deeply to see that it’s not all milk and honey where the unicorns live. The vast majority are missing one critical ingredient to become sustainable growth stories: profits.

Silicon Valley operates through the placement and creation of huge amounts of capital; this enables the startups they fund to prioritize growing as fast as they possibly can — blitzscaling — over everything else. They believe that doing so allows a company to outgrow competition.

In fact, 64% of the 100+ companies valued at more than $1 billion to complete a VC-backed IPO since 2010 have been unprofitable. And, whilst Wall Street doesn’t seem too concerned thus far, if today’s unicorns turn out to have created the majority of their value for pre-IPO investors, the public shareholder population will demonstrate their disillusionment by putting their money where their mouth is.

There is rarely an expectation for a startup to operate profitably in its infancy, but allowing companies to exponentially scale without tackling core competencies, such as operational efficiencies, represents huge looming hurdles for these newly IPO’d tech giants.

And, this is precisely why corporate innovators should take heart — they have one huge advantage over these highly valued unicorns: they know how to operate profitably at scale.

The Corporate Innovators Advantage

Operating profitably at scale, when maintained in tandem with an evolutionary strategy to provide products and services that continue to meet the needs and expectations of their customers, can give more traditional companies a huge advantage over new market entrants in their industries.

So, how can corporates harness this advantage?

The challenge for corporate innovators is actually the inverse of that of startups — operations are in order, it’s the evolutionary angle that typically requires support. In his book, Connecting the Dots, ex-Cisco CEO John Chambers talks about using your most forward-thinking customers to “see around corners.” This requires understanding customer challenges and needs so that businesses can formulate a plan of how to evolve to meet these changing needs.

Evaluate how well your company sees around corners with the Corporate Innovation Assessment.