RE: "New Normal" — Today's Thriving Startups Will Be Camels, Not Unicorns

Unicorn is the term given to startups that are able to achieve a billion-dollar valuation, although not as rare as they were a decade ago, these startups are still often time the center of Silicon Valley’s obsession with building, finding and funding the next big thing. The majority of Unicorn startups are known for growing tremendously fast and burning cash without any sign of profit or a single dime in revenue.

Unicorn startups, in their early days, are celebrated for losing lots of money in the course of gaining new customers, acquiring subsidiaries, building new products and services, and increasing their growth. Unicorns continue to lose hoards of money even after selling to customers and generating revenue because revenue derived from early customers is most times not enough to cover operating costs, therefore startups spend capital to acquire new customers with the hopes that future revenue surpasses operating costs, this has played out exceptionally well for companies like Facebook and Amazon, but sometimes this strategy doesn't pan out so well with startups like Shyp and WeWork failing after explosive growth. 

The shortcomings of Unicorn startups like WeWork and Brandless have had lasting effects on the way startups are viewed and valued, with WeWork being devalued from a whopping 47 billion dollars to 5 billion dollars in just a matter of months, so far the debacle has exposed the previously hidden flaws in Silicon Valley's startup and business ecosystem that valued immense growth and expansion over profitability and sustainability.

The hype given to Unicorns by the media and venture capitalists can not be overemphasized, but even before the coronavirus pandemic’s great effect on markets worldwide, the glamor of Silicon Valley startups have begun to fade and the hype has slowly been shifting towards ecosystems outside Silicon Valley, where we can learn a lot from the leading startups in these emerging markets, running with low capitals, surviving in hard to break emerging markets, and yet still turn a profit, these startups are termed ‘Camels’, and just like the animal, can easily adapt to multiple climates, thrive when times are bad and can survive with little resources for long periods of time.

The 2020 coronavirus pandemic greatly affected global economies and businesses in general, many tech startups, in particular, have felt its negative impacts, from a decrease in revenue to massive layouts, its safe to say that the global pandemic has made it a lot harder for startups to thrive, and to reckon with this new landscape where survival is by no means assured, the answer doesn’t lie in Silicon Valley, but with these global entrepreneurs who’ve been able to build sustainable startups in harsher environments. 

Profitability

Typical Silicon Valley startups, especially in their early stages, are known for hemorrhaging money without being close to turning a profit. Unicorns raise and spend huge amounts of capital to invest in growth, often subsidizing the cost of their products and services in order to increase customer acquisition, with the hope of their future revenue surpassing operation costs, and thus making a profit. 

Entrepreneurs outside Silicon Valley don’t share this same enthusiasm of free or subsidized products to increase growth as Unicorns do, neither do they stray far from sustainability nor sacrifice profitability for growth, therefore granting them the ability to make money and return profits on their own terms. Camel startups grow in controlled spurts, raising capital, and investing in growth only when the opportunity calls for it, growth is achieved in manageable increments and not by sacrificing profit, therefore their entire business is built on a fundamentally sound footing. 

Camels understand that a product’s price doesn’t mar growth or customer acquisition, and rather than subsidize their products and services to accommodate emerging markets not willing to pay as much, they work on improving their product and customer satisfaction, thus giving them a product worth paying for. 

Foresee Future Challenges

Survival is the number one priority for Camel startups because they understand that building a successful business is a long term endeavor. Camels give time to evolving their business model, finding and developing a product that resonates with customers, and developing a business that can deliver at scale.

Camel startups are startups that prepare for the future through thoughtful strategic growth, anticipate various crisis scenarios and prepare accordingly, draw various business plans for each scenario, communicate with investors, and take action when required. Camels are built in some of the toughest ecosystems in the world, they are built for sustainability and resilience, turning their challenges into advantages and therefore thriving in the long term. 

The goal of Camel startups founders is to build a profitable and sustainable business, rather than grow fast and cash out via an IPO or acquisition, for many of these companies, founders’ breaks don’t come after many years, because of this Camels have the unique ability to survive business downturns, changing economic conditions, and remain resilient. 

Diversification

To reduce risk of failure, Camels, unlike Unicorns, when it comes to their business plans, diversify their business and create many, sometimes unrelated, subsidiaries, so if one subsidiary takes a hit it doesn’t affect the entirety of the business, while Silicon Valley startups are known for having just a singular focus and being hyper-concentrated on just one thing, meaning if their primary focus isn’t as successful as anticipated, the whole business could fail.

In order to reduce the chances of their business failing, entrepreneurs outside the Bay Area have other strategic options, this means diversifying and expanding your startup to offer different products at different price points to different clients’ needs in different geographies. A company that has been able to successfully diversify their whole business is American conglomerate; Amazon, who has been able to build and acquire successful subsidiaries like Amazon Web Services (AWS), Ring, Alexa, Amazon Prime, and Whole Foods among many others, this strategy of pursuing different unrelated business opportunities has paid off very well for the company and is largely responsible for its success.

In Conclusion

Entrepreneurs in ecosystems outside Silicon Valley are brilliant for prioritizing sustainability over rapid growth but don’t in any way avoid growth and are still able to grow at a rapid pace. Their success is due to their ability to time, control, and balance their growth and not to do so at the expense of profitability and sustainability.

When it comes to building a successful startup, there is no single recipe for success, as every successful startup had its own unique path it took to become what it is today, but every successful business started with a strong foundation that was built to last. Camel startups are more likely to survive in times of uncertainty and turmoil because unlike Unicorn startups, they prepare for the worst. 

Chance is also has a huge role to play in making or breaking a startup, however taking the Camel approach in building a startup might just be your safest bet in securing investors, proving your startup can survive in the long run, and can easily turn a profit even in troubling circumstances. It’s almost impossible to predict which startups will fail or which will thrive, but at the same time, Silicon Valley has a lot to learn from the strategic approach of Camel startups.