If you’ve been reading my blog, you know I have never been a huge fan of the classical startup scene. Recently I did a lot of research about other startup models, such as the Zebra movement, the Responsible Startup trend, and the post-growth philosophy. Models based on sustainability and long-term profitability as opposed to exponential growth aimed at a big exit. A more respectful model for the consumers, the entrepreneurial ecosystem, and our communities at large.
All those initiatives reconciled me with the startup ecosystem. I was wrong, it’s not the startup scene that’s broken, it’s the “classical” unicorn business model.
In this blog post, I explain why I don’t want my company to be such a “classic” unicorn. I am not talking here about the valuation, but about the spirit and philosophy behind the classical definition of “unicorn startup”. I know, I know, that may seem like a weird claim. Everybody wants to get a whole lot of money from investors, exit big, and become the next Zuckerberg… Right?
Well, not me. Don’t get me wrong, I love money as much as the next guy. I mean, I really want my company to be valued at 1bn euros, of course. But I think the unicorn philosophy can be harmful to their customers, their employees, the startup ecosystem, and, well… all of us.
Care to give me 5 minutes so I can describe why?
Unicorns are harmful
it’s not just me. For some time now entrepreneurs, founders, startup communities, and even some investors, are looking for alternatives to a business model that does not resonate with their ideas, values, and principles.
So what’s broken in the classic unicorn business model? Well, let’s see…
Unicorns seek unsustainable growth
Subject to the pressure of the investors, a funded startup is supposed to show a hockey stick growth curve. YC startups are expected to grow at least at a 5-7% rate every week. Ideally, 10%. To put that in perspective, if you have 100 customers, that’s at least 21 more customers in one month (around 21%). If you have 1000, that’s at least 215 whooping new customers in one month. That’s the minimum.
Achieving that uninterrupted growth rate is f*****g difficult, and puts a lot of pressure on the founders. As a result, every thought of the CEO, every strategy of the team, every technological decision that’s taken has just one goal: hoard as many customers as possible. They need to show jaw-dropping numbers.
This means that other considerations such as the quality of the product, the effect on the customers or their communities, the effect on the ecosystem, the effect on the environment, the societies affected by the product, the employment scene in the country of origins of its employees, or other ethical aspects, are ignored if they don’t directly affect sign-ups or churns.
The unicorn mindset focuses on unsustainable growth. We look for sustainable profit. Something that allows us to grow and work on this project that we love.
Unicorns focus on quantity over quality
One of the most important problems of that business mindset is that, when it comes to customers or users, the only thing that matters is the number. The satisfaction of the customers is not considered beyond how it may affect the churn rate of the company. The long-term consequences that customers may face (legal, financial, or personal) are completely ignored.
If you are promoting a product that may get your users into financial trouble in 5 or 10 years, can cause them legal problems, or can potentially ruin their lives, well, that’s their problem, isn’t it? With luck, you’ll be out by then, and you’ll be enjoying your well-deserved exit. Right now, all you want, all your need, is for them to sign up.
While unicorns focus on (short-term) customer acquisition, we try to focus on (long-term) customer success and customer satisfaction.
Unicorns foster monopolies
As unicorns have access to a seemingly endless (and massive) amount of money to burn, they have an unfair competitive edge. And they use it for their evil unicorn purposes.
They can spend thousands (or hundreds of thousands) of dollars per month on marketing campaigns, social media, Google Adwords, PR… you name it. That’s ok, nothing wrong with it. The problem is that they can use ”dirty” techniques like setting the prices for their services as low as they want. In fact, they should, as the lower their prices, the higher their conversion numbers. They don’t need to be profitable. The salaries of their employees, the marketing costs, office costs, ping pong, and foosball tables… all of that is paid with investor’s money.
Fair players cannot usually enjoy the privilege of reducing their profit margins down to zero or even experience losses with each customer in the hopes of compensating with a market share increase.
We just experienced a similar scenario recently in our market. Our main competitor went as far as not only offering their services for free but also paying for the associated costs (state fees and notary fees that are usually paid by the customer) for the customer. That means they lose money with each customer. A luxury that most other providers can’t afford.
We are lucky, we are in a strong position in the market and can not only survive this move but also call the bet. However, this is wrong for so many reasons. First, it cheapens the work of everybody, including theirs, and sends the wrong message to customers, who expect these things to be “free”, devaluating the value of the product or service, the technology or the effort of the human team. But most relevantly, small players find themselves incapable of competing in that toxic market where a player has unilaterally started a race to the bottom – and beyond.
Unicorns kill competition. That’s bad news for customers.
What worries me is all those small companies that can’t respond to these evil techniques. The reason d’être of unicorns is killing the competition. Yes, they are not the benevolent, kind creatures depicted in fantasy movies. They are dangerous, territorial, reckless, and highly aggressive beasts.
And that’s bad news for the customers. By killing the competition with the techniques I’ve showcased above (such as lowering the prices to near zero or even losing money with every new customer or spending an indecent amount of money in marketing) they try to establish a monopoly.
Then, once the user has no other choice, they are free to increase the prices, change the conditions of the game to their liking, or otherwise abuse their users and customers, who have been left without alternative options. This monopolistic approach is currently exploited and celebrated by most well-established, once-startup companies such as Google, Facebook, or Amazon. It’s the aspiration of most unicorns: total control of the market.
Unlike unicorns, our company believes in collaboration and embraces (healthy) competition. We understand that races to the bottom and domination through these obscure techniques are zero-sum games. Eventually, we all lose.
Unicorns promote social inequality
I have been looking for developers for my team for some time now. It’s a hard endeavor, really hard. As a global company, we look for employees from any corner of the world. Some weeks ago, we focused on Ukrainian developers. They have a reputation of being quite good while speaking good English and Russian (which is really interesting for our team, as these are languages we use a lot).
Shockingly, the average salary expectations of these developers were in the 7000-8000€ range (net). We are talking about developers with 3-10 years of experience. I have currently 20 years of experience developing software, and my salary is much less than half that amount (not to mention that I am the CEO of the company).
The average salary in Ukraine is less than 700€. That means these people are asking for a salary that’s 10x the average salary in their countries. To put things in perspective, that’s akin to a German developer asking for 40,000€/month from her employer.
I know developers are highly skilled workers, but this is just ridiculous. Initially, the fact that a developer from Ukraine may ask for such a high salary may sound perfectly fine to you. We are in a global world, so if someone’s willing to pay that amount of money to him, then why shouldn’t he ask for it?
To answer that, we need to understand two things: the reasons why this person CAN ask for this salary and others cannot, and second, the consequences in the social fabric of Ukraine (in this case).
The Ukrainian developer and the Ukrainian salesman
Unicorns form engineer-heavy teams. Taking aside the board members and management positions, engineers (programmers, software architects, backend and frontend developers, etc) are the ones who get the highest salaries. The startup boom of the recent decades has created an unprecedented demand for these positions.
This surge in demand for IT personnel, alongside globalization, means western countries have started to outsource these positions overseas. A startup from California can certainly pay 6-7k€ to a developer from Ukraine, Portugal, or Malaysia, and they still save a lot of money compared to the wage of a developer from the Valley. We are not talking about a neutral business ecosystem where you could resort to the myth of meritocracy. We are talking about a minority of contestants from the richest countries of the world managing a massive amount of capital that moves only in this exclusive area of business. No textile company from Spain or automobile company from Germany can afford to spend that amount of money on their employees. It’s not scalable.
However, other types of professionals (accountants, lawyers, CS agents, HR managers…) are in much less demand. That same startup from California won’t pay 6-7k to an accountant from Moldova or a customer support agent from Brazil.
“So what?” you may say, “They chose the wrong career! Everybody knows computers are the future”. Unfortunately, it’s not that simple. This demand, fueled by VC money, creates huge social inequalities when that same developer from Ukraine is earning more than ten times what a salesman does. If we consider our societies as a whole, developers are as necessary as accountants, farmers, mathematicians, teachers, and yes, even lawyers.
Business models, when applied at scale, shape our societies.
Unicorns feed social inequality simply because they can afford to pay those ridiculously high salaries to developers in exchange for ultra-fast product development. In doing so, they also disregard the action of other social agents that, while not as useful for a quick exit, are essential for a sustainable product that adds real value to the members of a group or society.
We seek sustainability and a balance between profitability and social impact. Salaries should take into account the standard of living and the society, community, and special circumstances of every member of a team.
Unicorns disrupt democratic institutions and counter forces
Again, you may believe that the free market and meritocracy justify social inequality. Some people deserve better because they are smarter, bolder, or have more vision. This may be true to a certain extent. Some people have worked their asses off to build a business. They have taken risks, spent many sleepless nights in front of the computer, and worked 12-14 hours per day for months to launch a new release of their platform. I’m one of these guys, and I know most other folks out there are happy in their comfort zones being employed by a company. You should reward initiative, innovation, commitment, boldness, and passion.
But think twice or, more specifically, think globally. Apply Kant’s categorical imperative. Imagine a world with just a few companies (unicorns) such as Glovo and Uber monopolizing the food delivery and ridesharing markets, fixing ridiculously low fees for the couriers and drivers. Imagine a world where information is hoarded and exploited by advertising giants disguised as search engines or social communication platforms. Imagine a world where the time you spend reading something is more important than whether that article you are reading is true or not, or what are the consequences of you reading that.
That world is already here, and it’s all because of this business model championed by unicorns.
It’s time we, founders, shareholders, entrepreneurs, hustlers, and visionaries, come up with a different plan. A different model. One that generates profit, yes, but in a respectful way. One that is scalable but maintainable. A business model that adds value to all the stakeholders of the company, including the employees, the customers, and their societies, not just the shareholders.
The investment dilemma
Does that mean those of us who don’t want to follow this unicorn mindset are doomed to failure because we won’t get access to the same level of liquidity as unicorns if we refuse to abide by their rules? Not necessarily, but it’s definitely more difficult for us. For starters, there are not many VC firms interested in investing in “alternative” or more “fair” business models. Investors usually look for that hockey stick curve. Equality and social impact considerations come second… if at all.
That does not mean we can’t make it. Our strengths are also remarkable. By focusing on organic, sustainable growth, democratization, social justice, and long-term profitability, we can offer a real and solid service that’s designed to last. We can focus on quality, on our social impact, on the success of our customers, users, and stakeholders. These are aspects that Unicorns commonly disregard, and this fact gives us an edge. For us, it’s not easy for us to survive, but we’ve learned to do so since we were born. We are strong.
We just need to recognize these strengths and use them in our benefit.
I always thought that the startup scene was broken and that it encouraged monopolies, fostered social inequalities, and created shitty jobs. Now I understand that it’s not the startup ecosystem per se, but the traditional “Unicorn” business model and mindset. Fortunately, I have found out there are alternatives out there, including the Zebras and post-growth movements. We can think differently as founders.
Let’s create a new startup ecosystem, one that works for our communities. One that rewards initiative, innovation, and passion, but not at the expense of sustainability or the future of our customers and users. Let’s build something we can feel proud of, something that makes our societies fairer and our democracies stronger.