Wednesday, August 31, 2016

Should Founders Aspire To Build Unicorns or Blue Chips? - Part 2


After reading all of part 1 you still want to pursue unicorn status instead of focusing on acquiring users and acquiring paying customers then let no one get in your way.The alternative is to build something that can withstand the ups and downs of business.

Let me remind you what Blue chip are. Blue Chip businesses are businesses that operate very well in uncertainties and certainties because they’re likely industry leaders. There are businesses who got there not from multi-million dollars in founding, aggressive advertisement, and then wait to be acquired.


Blue chips are business who were likely fiscally savvy, smart risk tolerant, agile,etc. Google is one, Eventbrite,Uber, 3M, Magna, Coca-Cola, Sales Force, Amazon, Wal-Mart, Microsoft, Oracle,Kraft Heinz,P&G

When it comes to the monsters with one horns, something tells me that some might be packaging shit and calling it premium chocolate chip. 



And when your core product comes across like an add on feature, the giants in tech will duplicate your ass,crush or acquire your ass. Such examples include Pinterest, Square, Spotify, Evernote, Snapchat, Dropbox, Lyft, Slack, SurveyMonkey, Github, Jawbone, Buzzfeed, Nextdoor, etc.  

Nothing against them. Just seems most users can live with out them. Whatever happened to solving a real problem instead of giving us SnapChat? And if a free equivalent came along wouldn’t users just quickly jump ship?

Maybe when you finish reading maybe you might have a better sense of what you want. My advice is go out solve problems that humanity and businesses will always needs solving. Build to last not build to flip.

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What Could Go Wrong Going After Unicorn Status:

“Uber is losing money faster than any technology company ever, and it’s largely because of an essential component to thecompany’s operations: the drivers.
Bloomberg reports Uber lost $1.27 billion in the first half of this year, which is unprecedented, even for a tech company. By comparison, Amazon reported losses of $1.4 billion in 2000 during its biggest loss ever. Amazon CEO Jeff Bezos fired 15 percent of his
workforce as a result.” - - -Unknown Source

“It’s also worth mentioning one of the hottest European FinTech players, Powa Technologies – once worth $2.7 billion, the company collapsed into bankruptcy at the beginning of this year. As CNN reported, the company expanded quickly, setting up offices in exclusive locations in London, New York, and several other cities around the world, but failed to win customers, and never became profitable.” - - -Unknown Source

“Finally, let’s not forget Mozido, a mobile payments startup that has raised $300 million and been valued for as much as $5.6 billion. As Forbes reported at the end of July, Mozido has recently been having trouble paying its bills on time—it has delayed making payroll payments to employees several times in recent months and has yet to pay end of year 2015 bonuses.”- - -Unknown Source


Either Uber is an imaginary rainbow that will eventually have Gold at the end of it or nothing but positive growing pains.

Plus the upside to nations who create unicorns is that new skills are developed, new jobs, new innovation,  more wiser community is created, raising the value of their people.

In their pursuit of a grand vision they might discover new products and new processes to make life better. However for now lets look at what could go wrong.


Can’t Compete:


When you compete with rivals who dominate the same space and give no quarter you might be in trouble.  If you are not number 1 - 5 in the world, or top 5 in your country it will be tougher to compete.

Can’t Generate Revenue:


Sustainable revenue is key to longevity and the means for taking risk. Apple, Microsoft, Google, etc are sitting on so much cash that they can afford to throw money at any opportunity while continuing to pool cash from their cash cows.  And if you are thinking advertising is your revenue source consider the fact that almost 85 cent of every advertising dollar goes to Facebook and Google.  And AD blockers are on the rise.

Sometimes a lot of entrepreneurs get caught up in building their products, acquiring users and never caring about generating revenue till it becomes difficult to convince freemium users to start paying. Many experts have suggested many unicorn leaders are not interested in really building a business with revenue.

Can’t Develop a Good Business Model:


The thing that I have realized about digital goods or services, is that It can be difficult to get people to pay for it. It is troubling to see a $1 billion valued company with hundred million of users still struggling to find ways to develop a sustainable business model. And some VC seem to encourage scale at every expense while delaying revenue. VC end up sending mix messages to founders who think making money should be a distant thought.


Financial Hiccups:


In their effort to scale at any cost there’s the possibility that unicorns could be hit with some financial shocks like a recession, legal, losing key people, cash flow, surprise expense, etc. That’s the thing about being a founder or anyone for that matter, who never thinks the boom times will ever stop.


Possibility of Huge Failure:


It could all come crashing like a fucking meteor because unicorns grew too fast, burn through so much money, no product and market fit, personal problems, etc

The thing about online business is the endless need for traffic and conversion. It’s a daily grind to grab attention and keep attention in a hyper competitive world. So some unicorns result to some unethical black hat growth hack just to keep growing.

If data is king then constant data analysis is God. If unicorns are not monitoring and evaluating their performance they can be faced with missed opportunities.

Getting The Marketing Strategy Wrong:


There's no business in this modern age that can excel without some kind of selling and marketing. It is mandatory quality to have for business success. I’m not sure if I’ve come across a unicorn that is worth billions but has a shitty marketing strategy. If there were, they could either have gotten the target user wrong, branding, positioning, benefits and features, pricing, word choices, etc wrong


Stagnant Employee Counts:


The possibility of layoffs. The thing about high risk ventures is that changes are hard to predict. So It’s difficult to sustain growth without hiring more people. And when you are not generating enough to cover expense like overheads then you make cuts.

Declining Social Media Mention:


Some experts have said Unicorn companies that no longer generate buzz might be a sign that things might be going wrong. Everyone doesn’t want the euphoria to ever end. Uber, Airbnb are perfect examples that are just riding the love train right now but if no one is talking about them then that will be bad sign.

It Has Already Raised Over $100 Million:


There are really a few ventures that would need more than 100 million dollars to take off. At this point, if the company with that kind of money still hasn’t managed to get off the ground the chances are it will never do so or does an intense pivot.

And that’s a worrying theme among Unicorn companies. They aren’t following through on their initial hype. So much money, access to talent, industry connections, the world, power, fame, etc and you can’t generate significant revenue then you might just be a small business that has no business raising that much money.


Wrong Manager Incentive:


There’s the possibility that the advisers and other affiliate of the unicorn may have the wrong incentive system in place. Managers or advisers may try to manipulate the valuation process by literately cooking the books or using fancy accounting to appear more healthy. Unicorn managers could use sophisticated tricks as a to pump and dump on private IPO. There are many ways to look pretty when the tides are up but when the tides are gone we’ll all see who was not wearing any pants.


Preferential Treatment:


Having money can be beautiful thing however having lots of money can also mean a lot of power to throw your gorilla weight around. Sometimes depending on your connections, you might get preferential offers or deals compared to others who have little clout.

Unintentional and intentional preferential could disrupt the sense of unity in a team.

Dilution:

Every founder who hopes to raise money should understand the nature of dilution. The reality is that most VC, and institution are sophisticated enough to put mechanisms in place such as having anti-dilution protections in the funding agreements that can materially reduce the ownership percentage of prior investors, management, and employees,

Down Rounds:


There’s always the possibility of a down round. Where your next funds raised might be based on a lower valuation from your previous.According to experts it could also impact the ability to recruit great workers. Down rounds also could mean more pressure to start delivering a return no more acquiring users without making money.

Consumers Grow Tired of IAP:


A lot of unicorns businesses seem to revolve around apps. As you are aware there are multiple ways to generate revenue from digital goods. The common one is In-App-Purchase. If you have played a few app games you will know what I’m talking about. The reality is all that purchase, pay walls, rewards, speed ups, might become so annoying that more and more people ignore it. IAP were simply a way to unlock features now it has become an agressive way to nickel and dime users every single time which might frustrate users and impact revenue.

Not Thinking Big Picture:


If you fail to present a compelling vision you might not be a unicorn for very long. Amazon, SpaceX, Tesla, Uber are companies that are flooded with funds and quite unbelievably  unprofitable however their founders have manage to sell a larger than life vision that any smart money manager doesn't want to miss out on history.

So institutional investors and others give the company time to find its way. What I’m trying to say is if you are not driving or fearful of the lucrative future you envision then you are not thinking big enough.

Not Unique:


To stand out from the crowd there must be something that screams out your extraordinary qualities. You are Michael Phleps of your industry. You do things so well that competitors trip up to imitate you.

Now online it’s all about offering a compelling product, design, experience, transaction, delivery. If you have no idea how to excel in a hyper competitive world you might as well go work for the leaders.

Not Staying Focused:


It’s easy to get distracted by the next shinning penny but you might want to develop processes for exploring new opportunity while keeping your eyes on the prize. Don’t let experts, critics, advisors take you away from your ability to focus on what matters to your business.


Not Being Resourceful:


I don’t remember the last time I read an article on how to be resourceful. It’s really not a sexy skill compared to leadership or integrity. Being resourceful is the greatest skill that founders of all stages should have because it promotes imagination, efficiency, effectiveness, discipline, creativity, persistence, perseverance, etc

There have been many stories of companies who tried desperately to buy a solution to their business problems but weren’t happy with what was in the market so they decided to create their own solution.

The Unicorn Leadership Style:


The thing about leadership is that it can make or break unicorns. I was recently reading about the Founder of American Apparel and realized that no matter how successful you are you need to assert a level of humbleness and discipline and boundaries.
.
So what could go wrong when it comes to leadership? Is that some might fail to come back to earth to see the world through their employees eyes, customers eyes, demand the same sacrifice from workers that the founder puts in, inflated egos can hamper progress in innovation and stagnate growth, lack focus on priorities or misaligned priorities like trying to look attractive to attract investors or atrract deep pocket Goliaths.

Poor Initial Public Offerings (IPOs):


In the private IPOs many investors are going about their deal without facing the reality that the market will eventually adjust the valuation of the company. The less sophisticated investor buying IPO stocks is likely going to ask fundamental questions like how does this company make money, how easy is it for a better service to come along and disrupt everything, etc

A unicorn valuation is like picking a random valuation number out from a hat and making invrstment decisions on that. 

Zombie Unicorns:


There will be unicorns who reach a point they will no longer feel their venture has lost the wind in it’s sails. Eventually zombie unicorns will sit on so much money and spinning around just to figureout another reason to live. Or having to  abandon venture because the tech giants came out with their versions which provides more value and it's free. . 


What Could Go Right For Unicorn

The reality is that somepeople do earn their unicorn status and in most cases it is irrelevant to their drive to succeed. I recently read up on the the story of Airbnb and how they came to be. They really sh a perfect example for founders around the world that if you are truly are determined to see your dreams come to life then f$&# it and hustle.

The Airbnb founders in the summer of 2008, needed to raise funds so they baught a ton of cereal and designed special edition election-themed boxes “released that fall—Obama O’s and Cap’n McCain’s, which they sold at convention parties for $40 a box. They sold 500 boxes of each cereal, helping them to raise around $30k for Airbed & Breakfast.” - - -Unknown Source




Conclusion: The Future of Unicorn Companies

“...some editions covering foreign markets have noticed that tech startups that are unprofitable are still raising significant capital. Particular segments of FinTech, like challenger banks, have drawn the attention of banking professionals, who fairly question their business models. In April this year, Benoit Legrand, Head of FinTech at ING, commented, “Frankly, if you look at the neobank space — they’re flourishing everywhere but we’re still waiting for the business model to show up. Where is the money? Where is the return?”

Some suggest that business models of FinTech startups are not sustainable and companies are growing and able to function only because of the VC and corporate funding streams. And as we have mentioned before, the stream may dry out soon. “ - -- Unknown Source

As long has there’s money shushing around the world desperately seeking a place to make more money then there will always be unicorns. Just as there will always be companies who bootstrapped themselves to one billion valuation.

And there is always going to be troubling signs like Nextdoor. A social network for families and their neighborhoods that is not making money, manage to raise 100 million plus at a one billion valuation.


Dropbox the once hottest tech company is hardly making noise. Its product is getting squeezed out by tech titans. That’s the thing I continue to admire about companies who sell you a core addicting product and keep making convenient and inexpensive complimentary products. With every android product sold the more users start to sign-up for Google gmail product. And in comparision to others, Google seems to provide way more quality invaluable complimentary products. Dropbox's offer by itself is not valuable.


We currently live in a world were VC just basically hand off millions so founders can figure out the business models and experiment. From a founders point of view it is is brilliant.

You simply take other peoples' money regardless of  business model pre-money but throwing money hoping to stumble into a way to make money. A company that comes to mind is Fab.com. It is really a lesson on the art of selling dreams, potential and fantasy.

So when it comes down to business, the fundamentals of customers, revenue, growth, and profit are crucial in the endeavor of business. However, if possible, raise money when it’s best fit for you.  Spend it wisely and manage your growth efficiently. 

Spend money to acquire customers however try to recoup the investment within a short period.

Unicorns seem sexy now but having a business that keeps making money, serving customers and evolving is a lot better.

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