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Tips, advice, and information for South African business owners

24 Jan

Unicorn Shadow (The Dark Side)

Striving for a unicorn business – a privately-owned company valued at $1b or more – seems like a wonderful aspiration. Just like dreaming about how we might spend our lottery jackpot win, I don’t know of any entrepreneur who hasn’t entertained the idea of hitting a home run with their ventures like SpaceX, Airbnb, DropBox, and nearly 200 other unicorns in the world today. Each has created stupendous wealth for its founders and investors and they’ve undoubtedly made a big impact on the world.

Sadly, that impact is often bad. As Nic Haralambous opined in Daily Maverick recently, most unicorns are negatively disruptive. To achieve outsized results, it’s almost a pre-requisite to disrupt, but for most unicorns, the top priority driving disruption is the extreme and rapid shareholder returns. For many venture capitalists (VCs), the focus is on the velocity of investment-to-exit with a high liquidity pay-out i.e. cash versus holding equity for dividends.

While VCs might reap fantastic profits, the shadow side is the “at all costs” approach, damaging staff, stable industries, and social and environmental ecologies. Focussing on 10× growth for a VC to exit within 3-7 years is seldom a healthy objective when the only metric of success is the money.

So what’s the alternative?

Metaphorically, we need more zebras. In the article Zebras Fix What Unicorns Break, the authors list various analogies with the eponymous zebra, like sustainable prosperity, 2× growth and collective win-win, while juxtaposing this with unicorn traits of 10× growth, early exit, and win-lose.

Aner Ben-Ami writes in Noteworthy that viewing the world through the VC lens is “bad for founders, workers, communities and the planet.” He proposes an innovative alternative to equity- and debt funding, being revenue-based financing. Essentially, it involves paying investors a small percentage of revenue over a few years instead of driving unsustainable hyper-growth. Although the profits might be down, the success rate of all investments is much higher. Coincidentally before I found this article, this approach is precisely what we started implementing with some of our clients in 2019.

So as I see it, these new metaphors of unicorns and zebras are nothing new. In building a successful, sustainable and profitable business, the basic principles of good business have not changed:

  1. Hold the long-term in mind when making important decisions;
  2. Balance success metrics between financial, social and environmental;
  3. Create value for customers and suppliers, including staff, and not only shareholders; and
  4. Manage growth to be fast, but not too fast.

Unlike the common VC mind-set – I’m generalising; there are some responsible VCs! – too many entrepreneurs rush to extract wealth from their young business for ostentatious luxuries instead of re-investing for growth, especially during start-up. A key factor in our own growth targets is our social impact. Like almost all entrepreneurs, we want to make good money and we want to work with like-minded, profit-driven clients. But we are far more attracted to clients who, clichéd as it might sound, want to leave the world a better place and make good money. For us, real growth is measured in the lives we improve.

After all, if a business is not making the world better, one customer at a time, how can it lay any claim to being sustainable in any way?

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