Speculation around over-valued start-ups whose investors may never see a return on their millions is everywhere. It’s been estimated that the top 20 unicorn valuations are inflated by almost 27%.
The problem? This value is placed on companies with debt-based, unproven business models. And they’re all chasing explosive international growth.
There’s no method in the madness. In Farhad Manjoo’s words for the New York Times, these businesses are “debt-fueled rocket ships careening out of control”.
What’s the alternative?
Mailchimp is often referred to as the antithesis of the Silicon Valley model. Founded in 2001, its founders have been successfully building its current proposition since 2007. With no venture capital, a consistently profitable model and a drive to help small businesses grow.
In 2016 its anticipated revenue was $400 million. It gained almost 4 million new users in 2016. And the business has always made a profit.
So what can it teach us?
Stay true to your mission
Most businesses are set up to solve a problem in the world – some with big ambitions like democratising the world of money.
Coupled with their culture – and the people behind it – this is what makes them successful in the first place.
But what happens when you grow so rapidly you lose sight of why you’re doing what you do? When you don’t have time to get your team behind your ambition? Or in Uber’s case, when that was never right in the first place?
You end up like Thinx. The underwear company championing feminist values that women around the world could get behind. Until we discovered that none of what they claim to stand for applies to their culture.
Purpose and values driven businesses often have better long-term profit potential. So it makes sense to do it right.
Put the customer first
Customer experience is notoriously important at Mailchimp. The service was created from existing customer demand for it. Without investors to please, the company’s free to keep making it the priority.
Even with external pressure to prove explosive growth in user numbers, service and experience can’t fall down. Pleasing investors is important, but business leaders need to ask what their customers are thinking. User numbers have no value in the real world if they’re not retained.
In the Uber vs Lyft race to profitability, it looks like the underdog’s set to win.
While Uber’s doggedly – and arguably unsuccessfully - chased global dominance, Lyft’s focus has been on methodically building its presence in the USA. Its limited international pushes have been carefully executed through more cost-effective partnerships.
Its brand has also played an important role. Uber is seen as a bullish, masculine product of Silicon Valley culture – with no one keeping it in check. In comparison, Lyft’s friendly for both riders and drivers.
Yet another business that’s becoming a victim of its own success is flexible working space disruptor WeWork. Founder and CEO Adam Newmann reportedly said at a recent company meeting, “We did not used to be this way.” In spite of ambitious growth plans, the company cut its profit forecast by 78% last year.
No doubt, most of the entrepreneurs behind these businesses are intelligent, passionate and bold. But reckless business behaviour puts jobs, reputation and investors’ money at real risk. Leadership is as much about playing to your strengths as using the experts where you’re weak. And it might just be the smartest way to win.