Startups, unicorns and realistic expectations
Ken Cook
I am a fan of startups and entrepreneurism, having worked with them my entire professional career. I've written books for them, built businesses around them and through Inc. Magazine consulted with the best of them – the Inc. 500.
During my entire time working with startups and small business I have never seen a more fertile landscape and greater opportunities for entrepreneurs to be successful. The obvious driver behind the opportunities is technology. Everyone has access to it through their phone. The ubiquitous cloud and data farms that support it enable Internet services for almost anything you can think of. The latest wave, under the umbrella of The Internet of Things, proposes that anything, literally anything, can be made better, easier, faster through the internet.
The current technology landscape is truly disruptive. The life-sciences sector is achieving incredible breakthroughs because of the application of technology and the expanded collaboration and access to information. Traditional industries such as taxis and hotels are being turned upside down by Uber and Airbnb, respectively. Marrying technology to opportunity is limited only by imagination (or lack thereof).
Those of us who were around 15 years ago experiencing the dotcom bubble might say this is more of the same. It is the same in some respects; the enthusiasm and the flow of investment capital is as strong, if not stronger than it was 15 years ago. What's different is the revenue.
In the dotcom-bubble era, there were valuations in the hundreds of millions and investments in the tens of millions for companies that had no revenue. Some didn't even have well-thought-out business plans.
Today though, companies have customers and revenue. They are growing at rapid rates and investing millions to spur that growth. What's not present in great abundance are profits. And that's actually okay in many cases. Being first to a market opportunity and owning that market opportunity can eliminate many competitors. The companies will learn how to become more efficient, how to market more effectively, and how to increase profits.
A difference in this wave of technology and life-science startups is the appearance of the mythical unicorn, in this instance represented by valuations that exceed $1 billion. Today there are more than 50 of these unicorns: Uber for example has a valuation somewhere in the $50-billion range, which is more than 70 percent of the Fortune 500 combined.
Excitement for the startup community is understandable. There are opportunities to build some great companies. Amid all of this, I would like to offer a suggestion for the entrepreneur: have realistic expectations. According to Shikhar Ghosh, a senior lecturer at Harvard Business School, as many as 75 percent of venture-capital-backed firms fail. Venture capitalists "bury their dead very quietly," Mr. Ghosh said. "They emphasize the successes but they don't talk about the failures at all."
It's ironic that Silicon Valley adopted the mythical term unicorn for all of their future great companies. Many of the unicorns will evolve into a real failure, and some have begun the decline already. Between 2006 and 2013, more than 6,600 companies received venture capital funding; less than 1 percent reached IPO status.
Another aspect of realism is knowing that cash is king. Without capital nothing happens. Capital is attracted to opportunity, and in the beginning, capital is attracted to revenue. If you are starting, go out and sell someone on your product or service. If you need a prototype, there are incubators and Massachusetts development organizations that can help … or your rich aunt, if you and she are so inclined.
Build a business on a product, service, app or medical breakthrough that offers real value people will pay real money to get. Customers and revenues will attract investment capital. Once you get some capital, be aggressive and thrifty at the same time. Efficiently gain customers.
As I said at the beginning, I'm a big fan of entrepreneurs. I'm especially happy when they make it. Be realistic in your expectations and horde your cash wherever and whenever possible. Achieve early success and build on it. Fans in many forms will join you along the way.
Ken Cook is the co-founder of How to Who, an organization focused on helping people effectively build relationships and building business through those relationships. Learn more at www.howtowho.com.
WBJ Web Partners
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