Welcome to the Jungle! When entering the entrepreneurship-world, one can witness different species roaming the habitat. And exactly like their animal counterparts, all of them have a unique way to work and function as a company. Today we take a look at the biodiversity within entrepreneurship.
A unicorn describes a privately held startup that is valued at one billion dollars or more within a decade. Venture capitalist Aileen Lee made the term popular in 2013. The mythical horse-like creature with its prominent horn was chosen to emphasize the rarity of such a promising company. Since then unicorn has become a fixed and well known term in the startup industry. Reaching this status is a great achievement for any business. They are characterized by exponential growth with high profits for shareholders or when exiting. Good to know: If a startup is valued more than 10 billion dollars it is not a unicorn anymore, but a decacorn.
But since the golden era of the unicorns started, dark spots have emerged on their shiny coat: scandals of sexual harassment, sexism and rasicsm of much appraised and “blitzscaled” startups like Wework, Uber and Airbnb have made criticism of this type of companies louder. Opponents of the unicorn-system see the focus on measurable growth as short-lived. The group of people who are profiting both from product and revenue are not diverse enough as the majority is white and male. Also they believe that most unicorns are lacking any form of deeper meaning behind their existence than raising and earning money quickly.
Even rarer than the unicorn is the dragon. While the value of a unicorn is simply an estimation on the future impact and performance, it is not measured in its actual outcome for the investor. If a startup can return the invested funds to their capitalists, it is a dragon. And while investors can buy a share of a unicorn at any time, the dragon requires investors to find it at a very early stage. Very few unicorns turn out to be dragons at the end.
Since 2017 a counter concept to the unicorns has emerged to free entrepreneurs from the pressure of venture capitalists to scale as quickly as possible and maybe even regardless of the costs. And by choosing a real existing animal instead of a mythical creature as their mascot, the zebra startups see themselves as an ethical and inclusive movement. Growth and revenue are still important measurements but zebras strive for a sustainable growth that also creates impact to improve society – just like the animal has black AND white stripes. They also encourage working in a collective together for a common goal instead of pushing the business agenda as a loner. Quality, an agenda that focuses on creation and a long-term vision are the self-proclaimed core characteristics of these startups.
But while the ideology of being a zebra startup distances itself from unicorns, both forms do not exclude each other necessarily: From a financial standpoint there is always the possibility that a zebra can grow a horn.
The frugal camel startup does not need a supportive ecosystem like Silicon Valley to survive. Instead it is a company that focuses on building on solid ground and surviving even when times get rough. Like the zebras, a camel distinguishes itself from a unicorn by being rooted in reality and trading rapid growth for a more conservative business model: Camels grow when they can and the resources allow them to. Oftentimes they don’t have much capital to fall back on. Instead they manage their costs very carefully and build a portfolio matching the necessities of their strategy. Entrepreneurs of camel startups don’t risk everything by an all-in-investment but aim for a strong fundament that is able to withstand risks.
For many camel startups, diversification strategies are vital. These can lead to two effects: Either they are self-reinforcing, meaning to learn from one business area or market for another. Or they are self-balancing, meaning if there is a risk or setback in one area, it can be balanced by the consistency of the other areas.
Unlike the others, the definition of a gazelle startup isn’t fixed. Originally it described a startup with at least 1 million dollars revenue, which continued to increase this revenue by 20 percent at least for four years in a row. Today the term is used to describe mostly tech-startups founded in Africa. Because the invested capital in African companies is much less than in e.g. the United States in total, investors opt for a lower revenue than measuring in unicorn-standards. Most gazelle startups are publicly traded companies and differ in sizes. But characteristic to them all is the fast growth. Therefore they are often significant creators of new employment opportunities.
But as in nature there is always the danger of being hunted by a predator. Instagram can be viewed as an example which was acquired by Facebook. Even Facebook itself would meet the definition of a gazelle startup in its early days. Another risk with a gazelle company is that the rapid revenue growth can’t be kept up endlessly and is declining after a few years.
Startups who are referred to as Clydesdales often are defined by an annual revenue between 1 and 5 million dollars. With these numbers they do not reach the spheres of a unicorn but like its draft horse namesake make a majestic appearance none the less. And also concerning many other aspects it proves to be robust: Entrepreneurs with a Clydesdale startup avoid taking on debts but instead pay for their expenses right away and own property rather than renting or borrowing. Growth is a goal but only when the startup can afford it.
The donkey does not have the best reputation among the animals. And neither is being a donkey in any way desirable in the startup ecosystem. The term describes a former unicorn which couldn’t fulfil the expectations of their valuation. This can have many different reasons. Sometimes the startup put too much time and effort into raising money and neglected the basic economy of building a business. Other unicorns lost their coveted status when they went from privately held to public. Examples are WeWork or Uber who both lost 40 millions US dollars or more in the process of going public. In other cases the evaluation was fixed too much on promising possibilities than on more conservative facts and numbers. Just because the product of the startup (and especially the digital ones) are basically fit for every country in the world, the nature of the regional markets might pose an obstacle that can’t be overcome that easily.
Yes, there may be more attractive animals than the disliked bug. But while being a cockroach startup might sound like not very desirable it is actually not such a bad thing. Startups which are referred to as such are very sturdy companies, founded by hard-working individuals not keen to stand in the spotlight. They succeed not because of eccentric genius but because of patience, work, a solid foundation and practical thinking. These founders often start multiple businesses and put much effort in scaling them and finally selling them. That makes these startups long-lasting as changing economics are not an existing-threatening risk.The term of the cockroach, too, was established to create a counter-concept to the overall present unicorn and the sobering balance of the success of many.
The Thunder Lizard
The term was defined by Angel Investor Mike Maple and if you are thinking about Godzilla then you are closer than you think. A thunder lizard startup grows out of nowhere into a major player in its market and changes its shape for good. Because of the aim of these startups to not only be a mere player but rule the game, they are backed by large investments. Underlying their success is a strong business model that reflects their vision to rise to the top in their market. That includes the principal willingness not only to iterate but to pivot. Being a startup is a big advantage because oftentimes large companies have more resources but are unable to pivot drastically. A great example for a thunder lizard is a company that started out with offering a possibility to start podcasts. When this product became obsolete by a much bigger company releasing the same thing, they took the rist and pivoted completely. Today the company is named Twitter.
More for the Menagerie
Like in nature, there are many more animals roaming the entrepreneurship biosphere, than we could ever cover. And surely many more species will be emerging in times to come.