Unicorns of the Apocalypse
Part 1: The Hypergrowth Imperative & the Search for Meaning
9pm, dark outside. I’m rocking uneasily on the edge of my chair as the room focuses on our usual Tuesday meeting graphs.
The theme’s the same as it’s ever been, over and over: We’re growing, but not fast enough. “Not good”, says the CEO, “Next week we’ll really have to get the whips cracking”.
I’m no stranger to ‘the hustle’. I know that a healthy dose of military discipline can help startups pull through tough times. I should thus be saying “aye sir” and putting my marching boots on…
But not this Tuesday.
Maybe if I wasn’t hearing the same thing every single Tuesday... I mean, surely cracking whips should be a last resort, not a habit…? I haven’t gotten home before 10pm in the past six months and I’m pretty sure what I’m doing is work, not finger painting. How much harder do we need to march?
My usual reaction would be to put my head down and think “Ok, I haven’t been up to the task (again), but next week, shit will get real — I’ll finally work hard enough, I’m sure everyone else will too, and we’ll finally hear a fucking Hallelujah”.
But not this time.
The end of meeting ceremonial: “Questions?”.
Deep breath. I raise my hand.
“Blake” (let’s call this CEO Blake), “I get that we’re still not meeting expectations and I know you don’t choose your words lightly… But you’ve been asking us to crack whips again and again for weeks now… surely it means we’re getting something fundamentally wrong!? I don’t mind working harder, rethinking everything we do, getting home even later, but could you please just tell me, why? Why do we need to grow even faster?”
Short but deafening silence. I feel like everyone else is reaching for popcorn in their minds.
In something that feels like a convulsion, Blake stutters: “Because… we have to. Because… we’re a startup. Because, because… it’s cool!” (1)
I wasn’t expecting “cool”…
Blank stares.
I’m definitely 100% alone on this one.
I’m not convinced. More than that, I’m just skeptical. I’ve stopped believing there’s a growth miracle hiding somewhere in the to-do list Blake gives me that I’m just not seeing.
I feel like arguing but the collective unease is so very palpable. Maybe I’m the alien in the room here. Maybe what I imagine to be a real question is just a non sequitur. Since no-one else is reacting it’s probably best I didn’t inflict my debate on the group. We’re all begging to go home after all… or back to work.
So I say something like “Ok, got it Blake”, let it die off and let the meeting come to a close. I haven’t scored points with my question but fuck that, I don’t think it’s outrageous to ask for the meaning of one’s efforts and sacrifices of social life.
I never got a clearer answer. But I did get an impromptu one-to-one with Blake the next day to for him to warn me that my question was “absolutely unacceptable”, given “growth” was in my job description.
I probably apologised. I can’t remember. I also started going home an extra hour later but that didn’t make much of what I was working on grow much faster.
Unicorn | ˈjuːnɪkɔːn |
noun
1. A mythical animal typically represented as a horse with a single straight horn projecting from its forehead.
2. Something that is highly desirable but difficult to find or obtain: an album like this is something of a unicorn.
• a start-up company valued at more than a billion dollars, typically in the software or technology sector: a currency-exchange unicorn | [as modifier] : many unicorn start-ups have little revenue to speak of.
(Source: Apple Dictionary)
3. Paradigm according to which entrepreneurial endeavours with a priority other than hypergrowth towards a $B valuation are doing society a disservice: “I want 25 unicorns” (E. Macron)
(Source: Me)
Startups = (Hyper)Growth
The axiomatic equivalence of startups and growth is core to one of Paul Graham’s (2) most well-known essays.
His thinking goes as follows:
- Startups are attempts to uncover and serve new and high-value markets.
- Because it’s such a complex endeavour, entrepreneurs need to treat it as an optimisation problem: What’s the one thing I should focus on that will be a proxy for success in all other relevant areas? PG’s answer is growth. If you’re growing (preferably in revenue, alternatively in users) it more than likely means that you’re making something people want.
- A focus on growth is what’s most efficient to keep startup founders moving forward: It forces them to act rather than procrastinate and tinker. It also creates a form of “evolutionary pressure”: By pushing for growth you find out sooner if your idea holds water and discover adjacent ideas that can have even more potential.
“A startup is a company designed to grow fast.”
Paul Graham, Y Combinator, ‘Startup = Growth’
Ok, so how fast is fast?
In his essay, PG suggests that 5–7% weekly during Y Combinator (which lasts 3 months) is a good number, 10% weekly an amazing number, 1% a poor one.
10% weekly growth means you’ve grown 142-fold by year’s end, so there’s obviously a declining slope involved, which is why he identifies 3 phases: Low growth while you figure things out, followed by high growth as the product picks up, followed by slower growth as your startup becomes a big company.
When you go through Y Combinator you’re hoping it will help you achieve the product/market fit (3) to engage a transition between low and high growth and put you on the path to the Adoption → Scaling transition.
Scaling is when you’ll start seeking out investors for your Series A, B, C, … for which you’re looking at minimum 100% year-on-year growth (roughly equivalent to 1.5% weekly).
Maturity means you’ve grown so much you’re no longer nimble, have many processes in place to prevent your company’s implosion and have more employees on payroll than there are characters in 24 seasons of South Park. 100% isn’t achievable anymore: When I was an account manager at Google our Country Director regularly reminded us that 20% YoY was what kept Wall Street happy (roughly 0.035% weekly).
Wondering who made these rules in the first place? It’s largely a question of investor expectations, themselves the result of precedents set.
Let’s illustrate with a couple examples.
Making shoes vs. selling them online
Let’s time-travel to the 80s.
Nike, founded in 1964 as Blue Ribbon Sports, was a pretty hot stock back then. 20 years after selling its first pair of Onitsuka trainers from the back of a car, it had business columns excited about its domestic achievements and international prospects. Yearly revenue had grown something like this (4):
Now, if you’ve ever heard of the fabled “hockey stick” of growth, this definitely looked like one. If you’d invested $10,000 in Nike stock at its 1980 IPO, they’d today be worth $5,236,290 and yield a yearly $51,199 in dividends (5). Pre-tty sweet.
The second half of the 90s invited in a different kind of business with the Worldwide Web. Sure, by the turn of the millennium there were more stories of collapse than success, but one empire prevailed that made Nike’s growth trajectory look pretty… mundane.
By being an online business, Amazon was able to free itself of many of the constraints Nike had grown with. Their first million dollars in revenue came in year 1, versus year 8 for Nike (6). Obviously, we’re comparing apples and oranges here, stacking up a retailer against a manufacturer, so comparing growth rates might give a more interesting picture:
What really set Amazon apart was the trend: Insane growth in the first few years meant the business scaled to Maturity much faster and the introduction of venture capital to the mix was a key enabler.
In its early years, Nike failed to secure significant credit lines from their bank but did manage to emit $200,000 worth of bonds in year 8 (1971). Inking a deal with one of Japan’s biggest trading companies secured a further $1M loan and the company laboured on until IPO in year 17 (1980) (7).
Amazon, on the other hand, raised an $8M ($2M in 1971 dollars) series A in year 2 (1996) led by KPCB and IPO’d in year 3. By approaching Maturity much faster than Nike did, Amazon generated significant return on investment for investors in much less time.
And from the moment you’ve proven making a fast fortune is possible, investing in a shoe company starts sounding a lot less sexy than it used to.
When you have money, who’s got the time to be patient?
Monetising narcissism
Moving forward another decade brings us to the deployment of broadband internet at scale, followed by the paradigm-shifting launch of the iPhone in 2007. Humans now had the means to spend way more time online building their online persona to become the best version of their virtual selves.
After Friendster, Myspace, Second Life and others, Facebook took its shot at glory. The game-changer with this new breed of business was the quest to capture the biggest possible audience before making any kind of money. By locking users inside exciting online properties for as much daily time as possible, hoodie-wearing techies were building the platforms Polo-wearing business majors with an eye for profit could turn into gold later.
To the pace of Zuckerberg’s shouts of “Domination!”, Facebook aced the user growth game:
And delayed though it was, revenue followed suit, making Amazon (and Nike) look in turn, well, less sexy.
But this was also a siren call for Computer Science majors the world over: One could achieve Forbes fame by launching digital products making 0 actual money because you were now allowed to just think about it later. Capture an audience, then milk it.
The idea wasn’t lost on Kevin Systrom and Mike Krieger, who co-founded Instagram in 2010 and sold it to Facebook for $1B 18 months later. At the time Instagram’s revenue was a casual $0 but they had a captive audience whose growth blew Facebook out of the water (8).
Apply the “users first, money second” framework and it’s easy to understand why Facebook paid (what was then) so much for an 18-month old app.
So the message coming from Silicon Valley was abundantly clear: Insane user growth funded by bagloads of VC money = big/fast-ass payday (aka “liquidity event”).
Closer to home
On the European scene, Rocket Internet were the ones to really kick the anthill (in my opinion) and drill the urgency of growth into startupping minds.
Pre-2001 bubble-bursting, the Samwer brothers had managed the tour de force of selling a clone of eBay to eBay for $43M, less than 100 days after getting started. A decade and several further financial successes (9) later, they were selling City Deal, their clone of Groupon (itself a Silicon Valley darling at the time), to Groupon for (allegedly) around $100M. Groupon had existed for more than two years and totalled 300 employees. City Deal had only been in operation for six months and counted six hundred.
I was about to start my final year in business school when the transaction happened and had friends who’d interned there pre-sale. It felt like a big deal. The game wasn’t about growth any more. Growth wasn’t fast enough. It had to be about HYPER growth.
Startups now had to scale to an unassailable size at breakneck pace otherwise a bunch of ex-consultants and ex-bankers somewhere would clone their business faster than you could say “Kleiner Perkins Caufield & Byers”.
Rocket’s attack of the clones didn’t actually last much longer: I interned there in the thick of it (mid-2012) and within 6 months most of the clones had shut down, with the Paris office laser-focused on Jumia.
Rocket’s impact was real however and the hypergrowth movement was on fire. In France you had Doctolib scaling from 4 cofounders in 2013 to 1500 employees today, raising close to 270M€ and absorbing Mon Docteur, their copy/paste rival, in the process. In the UK, Deliveroo launched in 2014, counting ~6000 employees today (pre-COVID, courriers excluded) and raising $1.5B. In Germany, N26 launched in 2013 and raised $783M. In the Netherlands, Adyen launched in 2006 and raised $266M from 2011 onwards.
The amount of VC money thrown at these guys just makes your head spin, so much so that City Deal’s $100M exit sounds like peanuts today.
Case in point: Earlier this year in France, the neo-bank Shine (founded 2017) sold for as much to Société Générale and many in the French startup scene were offended by the lack of ambition.
With all of this explosive growth in the 2010s, the European continent was resolutely engaged in the era of the unicorn, the mythical startup valued at $1B or more (10).
It’s become the prize for any entrepreneur who fancies playing the grownup game. The more prestigious thing to do than consulting or investment banking. The question on every VC’s lips: “How and why are you going to become the next unicorn?”. The political symbol for the president of Startup Nation.
And it definitely feels like there’s no going back. Especially since unicorns already aren’t ambitious enough any more… bring on the decacorns!!! (≥ $10B valuation).
(Hyper)Growth isn’t a substitute for Meaning
I think I was mostly trying to make sense of the rush, on that dark Tuesday night. My question to Blake was: “Why do we need to grow faster?”. The answer, in essence: “We need to grow faster because we need to grow”.
Had I insisted a bit, the discussion could probably have concluded along these lines:
“We need to grow faster because in raising our Series A, we promised a time-bound growth rate to our investors who themselves promised a time-bound growth rate to their LPs (11). If we don’t satisfy both we’ll never raise another round to accelerate our growth even further. As the CEO, I can’t let that happen”.
All true and rational in Unicorn Land, but we’re still telling ourselves that we need to grow… because we need to grow. And I think that was an acceptable answer in the mind of a CEO like Blake because somewhere in there was the voice of Eric Schmidt: “Revenue solves all known problems” (12) — a quote you’ll hear in many a startup corridor and meeting room. It’s a mantra that makes particular startup sense when you consider unicorns are defined only by their financial valuation — externalities and societal progress are irrelevant to being accepted into the club.
Consequently, Unicorn Land tends to smother signals that would make CEOs and founders imagine quantitatively fuzzy things like externalities or abstract notions of societal value deserve some mental space.
VCs typically close their funds in 10 years so they are expecting failure or a 10X exit from you in 4–5 years max. Your startup peers are growing faster than you and stealing you mojo. The startup literature and zeitgeist are busy glorifying the beauty of your hustle. There’s no time for fuzzy shit.
But zoom out a little and the CEO’s employees will start entering the frame. Unlike founders and investors, they have a statistically insignificant (13) chance of getting filthy rich with an exit, so they’ll more naturally question the meaning of the breakneck numbers race.
It won’t happen on day 1. There’s always excitement on day 1, and it gets amplified as you start experiencing the company’s growth for yourself: Graphs pointing up and to the right, media interviews of the CEO in your Linkedin feed, new people arriving and company parties getting bigger. But when growth is no longer a novelty but an imperative, meaning comes back knocking.
Lack of meaning is when employees can’t find satisfying answers to questions like “Why am I here?”, “Why did I get up this morning?” or “Why is our culture of ‘never enough’ OK?”. When meaning lacks, employees will stop caring, burn out, slow down, jump ship. Your startup can be growing in revenue, even in profitable revenue, and still see your best people leave.
People, Product, Profits, in that order
My old boss Jim Barksdale was fond of saying, “We take care of the people, the products, and the profits — in that order.” It’s a simple saying, but it’s deep. “Taking care of the people” is the most difficult of the three by far and if you don’t do it, the other two won’t matter. Taking care of the people means that your company is a good place to work. Most workplaces are far from good.
Ben Horowitz, ‘The Hard Thing About Hard Things’
Horowitz demonstrates that if you want your team to stay on board, your job as a CEO is to make them feel they are in the right place. Hiring the right people, proper training policy, high-impact onboarding of new recruits, keeping a lid on internal politics,… All critical when retention hinges on employees feeling they are in an organisation that furthers their career and values them personally. It’s the satisfaction of individualistic motivations focused on my value on the job market as an employee.
But from the moment I start worrying about things like the role of my industry in the polarisation of political discourse or the environmental legacy of my career, no matter how well my employer caters to my job satisfaction, no matter our growth rate, I’ll need something else to keep feeling I’m in the right place.
When career progression and economic growth are no longer the condiciones sine quibus non to my getting out of bed, individualism as a Randian force for good has stopped working, as The Economist explored last year:
Businesspeople, being people, like to feel they are doing good. Until the financial crisis, though, for a generation or so most had been happy to think that they did good simply by doing well.
[…] In a free market, pursuing shareholder value would in and of itself deliver the best goods and services to the public, optimise employment and create the most wealth — wealth which could then be put to all sorts of good uses. It is a view of the world at the same time bracing in its simple rigour and comforting in the lack of social burdens it places on corporate backs.
The Economist, ‘What are companies for?’, Aug 22, 2019
While ‘The Hard Thing About Hard Things’ was published in 2014, the adventures it depicts happened in the early 2000s. The internet back then was still a nerdy dream of dissemination of enlightenment rather than of teen depression. Environmentalism was more about token gestures of recycling than hard talk of atmospheric concentrations of CO2. The evening news told stories of mass protests against demagogs in faraway lands, not in Portland, OR. At Horowitz’s Opsware (14) like elsewhere in 2002, doing good more than likely meant doing well.
In 2020, doing good means something different. “Why am I here?” becomes an all-encompassing question, not just one of personal optimisation. It intersects with “Are we, as a company, harming or helping the planet? Are we doing neither and acting like it’s a business-as-usual world out there?”.
This means that in a world where employees care about externalities and societal impact, when a CEO makes you understand that (s)he doesn’t have time for fuzzy shit like reasons “why”, (s)he’s revisiting Chapter 5 of ‘The Hard Thing About Hard Things’, unicorn style:
And that, as you’d imagine, has quite an impact on employee morale, sense of purpose, personal investment and productivity.
The truth is, though, you won’t find many CEOs who actually don’t give a shit about the existential angst of their employees. Most I’ve met would agree that at least putting words on their company’s purpose in this world is important, but less so than hitting growth targets. Especially when your company isn’t profitable (as is the case with most startups), anything other than feeding the growth / cash infusion cycle feels like a luxury. No cash, no jobs. So the metaphysics will be worked on… later.
For many founders and CEOs, investing in the metaphysics of your startup is also scary because the ROI is impossible to demonstrate in a Google Sheet. It sounds unfocused and convoluted and expensive and like a good excuse to waste time in meetings sticking post-its. A bit like branding (15). Which has the perverse effect of corporate soul-searching and branding being seen as one and the same thing and handed over to the marketing team with the smallest budget they’ll not go on strike over. Worse still is when budget and time are unlocked but with pressure to deliver what makes the company look good (i.e. purpose-washing) rather than work well.
Investing in making your people feel they are in the right place isn’t marketing and it starts with something much simpler: Founders openly expressing their personal motivations.
Wait. What? How is asking your CEO, the human being called Blake, what he wants in life anything but intrusive and any good for his growth rate?
Well, whether he likes it or not, his personal reasons for steering the ship in the direction he’s chosen are the foundation on top of which the culture of his company grows. And as the overused saying goes: “Culture eats strategy for breakfast”. Why? Because when there is a cultural void left by the absence of purpose, you end up with jerks like me asking why they should be working instead of actually working. 🤷♂
Founders own Meaning
A company exists because one day, its founders decided to stop what they were doing and create something new. They didn’t do it because they had to, they did it because they wanted to.
They hired the people they did because they wanted to. They didn’t hire the people they did because they wanted not to. They made the product choices they did because they wanted to. As long as they’re alive and at the helm of the business, the impact their startup has on the world is the outcome of what they wanted and continue to want.
You therefore can’t understand a startup without understanding its founders.
Meet Sally and Paul
Over 9 years I’ve worked directly with six different CEOs and discussed entrepreneurship with a few dozen others. Every founder is different but I did come across patterns that have led me to imagine a simplified “model” where two root profiles exist (16):
- 👩💼 Sharp Sally: Sees a market opportunity, sizes it and figures it can be turned into a business. Intrinsic motivation is becoming an Entrepreneur. Enthusiasm for the target industry is optional and the industry can change along the way: What matters is building a fast-growing company.
- 👨🎨 Passionate Paul: Has an obsession, a wild frustration he wants to see fixed and needs to build the company that will do it. Intrinsic motivation is solving that specific problem. Changing industries is not an option: The problem he’s identified is just too important.
Sally and Paul have different wants; asking them why their startup needs to grow will therefore lead to different conversations.
Let’s have those conversations right now using the “Five Whys” technique. Many people have applied it to questions like “Why did we not hit our growth target?” but I’ve never seen it applied to questions like “Why do we have to hit our growth target?”.
Sally first.
The Five Whys of 👩💼 Sharp Sally:
Why do we have to hit our weekly growth target? — Because not growing as fast makes us look weak compared to the rest of the startup ecosystem.
Why does it matter that we not appear weak? — Because we’re shooting for an exit / a new round of funding in anticipation of a future exit and we can’t do it without stronger-than-average growth.
Why do we want to exit? — Because I founded this company on the basis of a market opportunity I knew could make me serious money. I’m not giving up on that and I won’t leave a penny on the table.
Why do you need to make serious money? — Because I crave the long-term independence and/or social status becoming rich guarantees.
Why do you crave the independence and/or status? — Because I hate the idea of other people being able to tell me what I can and can’t do.
Sally doesn’t have time for metaphysics. The more time she spends not being the master of her own destiny, the more frustrated she gets. Growth is her north star because it’s the right means to her end.
So when you ask Sally why hitting weekly growth targets matters, she may have the patience and radical candor to go through the Five Whys with you but more than anything she’ll wonder why she hired you in the first place.
To better understand Sally, Ayn Rand, the libertarian ethos and the ideas that founded Silicon Valley culture might be a good approach (17).
Now onto Paul.
The Five Whys of 👨🎨 Passionate Paul:
Why do we have to hit our weekly growth target? — Because not growing as fast means our product won’t reach the critical mass we’re hoping for by [date].
Why do we need to reach critical mass by [date]? — Because we’d otherwise risk missing the financial tipping point that enables us to invest in the next stage of our R&D.
Why do we need to invest in another stage of R&D? — Because for the moment we’re only solving [problem] at a scale that’s way too small to make a difference.
Why does the scale at which we solve [problem] matter? — Because to really solve [problem], I believe a sum of small-scale solutions will never be as efficient as a single large-scale solution.
Why does it matter that we be the ones to create that large-scale solution? — Because I’ve experienced [problem] first-hand and solving it is what makes me feel I’m leading a meaningful life.
Paul’s startup quest started out as profoundly metaphysical. He felt anxiety about a problem, maybe it had to do with climate change, air pollution, education, global nutrition, gender empowerment, forex trading… Slowly but surely, his anxiety turned into ideas, his ideas turned into a dream and his dream turned into an obsession.
When you ask Paul why hitting weekly growth targets matters, if it’s the first time you’re asking, he’ll feel bad about not having made his dream clear enough. If it’s the second time you ask, he’ll start thinking he really needs a communication coach. If it’s the tenth time, like Sally, he’ll start wondering why he hired you in the first place (I mean, who’d blame him?).
A good way to better understand Paul might be to read into the story of a wide range of people like Yvon Chouinard, Muhammad Yunus, Steve Jobs and yes, even Elon Musk (18).
Mission, Vision and the Sally / Paul Equilibrium
I’ve worked with a Sally who had a mind-blowingly detailed picture of what the future held for her company: She knew exactly how many people, how much growth, what product features she needed to reach her goals. Even more impressive, her forecasts would always prove correct. But correct as they were, they didn’t give us much of a clue as to why what we were doing mattered to society. Meaning was hard to experience in the day-to-day rush because the stories she told us were about numbers, not her idea of the world.
I’ve worked with a Paul who had a truly messianic sense of purpose. He had us taking on something big that really mattered in ways that were easy to understand. The path to get there was however not only unclear but it changed every other week. The inspiring stories he told us nearly all broke down at Q&A because down-to-earth challenges from the team were always met with painfully fuzzy responses.
To me what they were both missing was the right balance between inspiration and execution in the stories they told. It was essentially one or the other and I find it’s a type of imbalance that gets accentuated even more when a Sally’s cofounder is also a Sally, a Paul’s cofounder also a Paul.
Why does striking that balance matter? Because whether founders’ self-actualisation comes from achieving financial independence or solving big problems for society, it will only happen if they can align a group of diverse people with their personal aspirations as founders. When your stories fail to align your team with your aspirations, cracking whips instead will only get you so far because employees can always say “fuck you” and leave.
Storytelling that works is storytelling that both inspires meaning and leads to action. It contains two key ingredients: a Mission and a Vision. It activates both the right brain and the left brain.
Mission: The reason the company exists, the place it plans to occupy in the new world the founders imagine.
Vision: The path to get there; how the founders intend to see their people, products, services and cash turn the Mission into a new reality.
In my experience, Sallies tend to be impressive visionaries with a bias towards doing things fast. Pauls tend to be inspiring missionaries with a bias towards doing things right. Sallies find answers to their questions by doing, Pauls find answers to their questions by thinking. When faced with tough decisions, Sallies will lean towards the option best backed by the numbers, Pauls will opt for what’s best backed by their beliefs about the future.
You probably won’t be surprised if I opine Unicorn Land has a clear bias towards Sally-ness. When fast growth is already happening everyone’s fine with founders fine-tuning their Mission / Vision, Sally / Paul equilibrium, but when the numbers lack lustre, investors will clearly prefer to see people whose north star is growth in the driver’s seat.
When fast growth isn’t happening, Pauls will be pressured or pressure themselves into being more like Sallies, Sallies into being even more of a Sally. The inspiration / execution equilibrium will tip towards execution-and-stop-asking-questions-please and create the perfect conditions for meaninglessness to run riot in the workplace.
You might think a Paul working on his Sally-ness is a good idea. I however don’t think a Paul can make a good Sally because deep down he cares more about impact than financials. Worse, under unicorn pressure he might very well try to overcompensate, shut down his Paul-ness and end up being both a bad Sally and a bad Paul. Meanwhile, an ultra Sally is, well, an ultra Sally. She’s panicking about her numbers and cracking whips as fast as she’s drinking coffees — or, God forbid, Red Bull (19).
What you end up with is what I call soullessness. Founders have been pressured and/or pressured themselves into putting how to become a unicorn far above why become a unicorn. Their inner flame withers, their storytelling breaks down and they resort to the Ultra-Sally method of managing people like they manage their cashflows, with spreadsheets. And when that happens, the excitement of being in a startup has totally died for their employees.
The trap of unnatural growth
Some startups are just made to scale to unicorn size at unicorn pace. A great idea at the right time, in the right market, with a complementary Sally / Paul team that hires the right people and inspires the right amount of passion and dedication… The company is solving a real problem for real people and founders will have a better than average chance of laying healthy foundations permitted by natural traction (20). As the company grows, the alignment these healthy foundations enable creates a virtuous cycle of meaning for employees, amplified by the growing scale of what they are building.
Alignment is when there’s radical consistency between what you think, what you say and what you do. We notice its presence or absence when we look at corporations, politicians or ourselves after reading books about mindfulness, for example.
In a healthy business, rapid growth is the result of alignment between the target market and the six dimensions above. Better than being rapid, aligned growth is sustainable (purely from an economic standpoint, we’ll talk about actual sustainability in part 2) and a source of pride for employees.
Some startups, on the other hand, aren’t made to scale to unicorn size at unicorn pace. Their founders however act as if they were, perhaps because of their own misjudgement or, more likely, because of psychological pressure from the ecosystem and/or investors. Things start getting ugly because growth is no longer seen as the consequence of alignment but as a prerequisite for everything else. Investing in the culture will happen when there’s enough growth. Thinking about externalities caused by the business model is a rich startup’s problem. Pushing unfinished or buggy products on customers is not just acceptable, it’s a necessity for survival.
In these situations, alignment becomes impossible: You’ve pitched grandiose ambitions but you’re struggling to deliver. So you start making compromises.
It can be about overselling your product when the whole team knows it doesn’t live up to its stated promise. Or about making token claims of greenness when you’re well disposed towards tripling your carbon footprint if it makes your products ship as fast as Amazon Prime. Sometimes it’s about trying to compensate the mind-numbingness of the jobs you’ve created with ping-pong tables and snacks. And sometimes you just lose your shit, pull a Theranos, lie to everyone and defraud your investors (21). Because, you know, people do that, sometimes.
When you push hard to grow your business to a size and at a pace it wasn’t naturally destined to thrive at, you’re priming your company for an implosion of cynicism.
In the natural world of success being defined by a whole host of other metrics than financial valuation, there are countless situations where growing faster isn’t better and can even be simply toxic.
In the abstract, economic sense, a 30% chance of making $3M is as good as a 3% chance of making $30M is as good as a 0.3% chance at making $300M.
The strategies employed to pursue the 30% for $3M are often in direct opposition to the strategies needed for a 0.3% shot at making $300M. Shooting for the stars and landing on the moon is not how Monday morning turns out.
David Heinemeir-Hansson, Basecamp, ‘Reconsider’
The smaller your perceived chance of hitting your valuation target, the more risks you’ll be ready to take. In most startup literature, more risk is better and a sign you’re an alpha-human worthy of TechCrunch praise. In a world where more risk means more compromise, what will inevitably emerge is the collateral damage of glory.
Cynicism is the result of the unaddressed collateral damage. When you’re committing to unhealthy growth strategies and not showing any sign of acknowledging your company’s misalignments, you’ll have a very hard time shaking cynicism out of your team.
In my humble startupping experience, there’s no cultural trait more self-destructive than cynicism. When it takes root, targets become jokes, people elbow their way to success, communication becomes both a lie and a parody.
And good luck replacing the people who leave your company in that context.
Conclusion
In Unicorn Land, hype and financial pressure have led many to position growing fast as doing the right thing, rather than being the result of doing the right things. With that causality inverted, glorifying unicorn culture risks turning startup culture at large into a source of problems at scale rather than a reservoir of scalable solutions.
If we think back to Paul Graham whom we quoted at the start of this article, he himself does not glorify chasing valuations:
What I’ve been arguing is that to design your startup in such a way that users love you, you have to start by making your team love what they do (try getting first-class customer service out of a rep who hates her job). For them to love what they do they must understand why they’re doing it, understand and believe why it matters and see the alignment between what founders claim matters to them and the decisions they take.
When I look at the French scene, I find (with my outsider’s eye) companies like Ÿnsect or Back Market to be great examples of meaning and alignment done well. I also see them as hope for a tech industry that solves pressing planetary problems.
That does not mean however that companies that are neither under the spotlight nor tackling subjects on the Paris Accords’ to-do list can’t create a work environment where employees understand why they do what they do and feel like it matters. Companies of that kind come in all shapes and sizes.
Having said that, the biggest problem, to me, is elsewhere: The deep-rooted economic and political belief that any transformation into a unicorn is a desirable outcome. That no matter the industry, any idea capable of reaching a billion-dollar valuation is worth celebrating.
I find that to be both untrue and harmful.
When mobility companies leave graveyards of steel in their wake and neo-banking companies burn out cohort after cohort of otherwise enthusiastic human beings, you can’t just say “Oh, but it’s okay, they were just trying to become unicorns”. When the president of your country declares he wants 20 new unicorns in 5 years, because of how we define unicorns, to me, implicitly, that’s what he’s saying. And as a politician, he’s only reflecting what he thinks enough voting-age people want, mind you.
The conclusion of this logic is that you not only put valuation above meaning, but also that you continue to chase growth as if there were a planet B.
And that, dear reader, is what I want to explore in part 2.
Coming soon 👉 Unicorns of the Apocalypse pt.2: The Hypergrowth Imperative in a Finite World
Follow me on Medium and Linkedin to be notified when I publish it!
And if you feel like debating this subject with me, do feel free to ping me on Linkedin, it’d be a pleasure to chat.
Notes & Sources
Massive thanks to:
Clément Jeanneau, Arthur Rougier, Anne-Gaëlle Delmond, Romain Vannier, Anh-Tho Chuong, Judith Saragossi, Pierre Peyretou, Louis Moullard, Virginie Servant for their infinitely valuable feedback.
NounProject credits:
- Unicorns: cinnamon stick
- Hand: Oleksandr Panasovskyi (cf Sally / Paul Equilibrium)
Footnotes:
(1) It was all pretty tense. I can’t guarantee 100% that’s exactly what was said, though I’m rather confident. If not in letter, in spirit at least that was definitely what was said.
(2) High chance that by the very fact you’re here and reading this post I don’t need to tell you who Paul Graham is, but just in case: Paul is the cofounder of Y-Combinator, the world’s most popular startup incubator. His personal blog and especially his essays are an immense source of inspiration for entrepreneurs and would be entrepreneurs out there. Most recently, his essay on writing essays I found particularly enlightening.
(3) Simply put, product / market fit is when you’ve made the right thing for the right people and users / customers start coming faster than anything you’d experienced before. For a more complete analysis, you can look to this Andreessen-Horowitz blog post.
(4) A good deal of these numbers are an interpolation based off a 1983 NYT article plus some Google image results.
(5) It’d actually be more, my source is a Motley Fool article from Nov. 11th 2019 and Nike’s stock has gone up 44% since then.
(6) Again, interpolating here, I have their revenue between 1964 and 1968, then from 1980 onwards.
(7) My source here is a bit of a random blog… but I decided to deem it trustworthy 🤷♂
(8) Here again, I don’t have the exact month-by-month numbers for each, so there’s some interpolation involved.
(9) Jamba (company creation), StudiVZ, MyVideo, BigPoint (investments)
(10) The term first came about in 2013, and appeared in TechCrunch.
(11) LP = Limited Partner, i.e. a VC’s own investor. They can often be institutional investors like pension funds, sovereign funds but also family offices (private fortunes).
(12) It is important to note that Schmidt doesn’t mean it as a sweeping generalisation. But when you hear it in the mouths of startup founders or execs however, it does tend to become one.
(13) Keep in mind that for every unicorn you’ll get maybe 9999 would-be unicorns cracking whips day in and day out who’ll never get there. Sure, Apple, Facebook and Google early employees all became proper millionaires and those examples make job candidates salivate about equity when they sign their employment contract. But let’s consider a more realistic scenario: You’re an early employee of a promising startup like Shine (mentioned earlier) and you managed to negotiate 0.5% equity. Assuming you don’t get diluted with the rounds of funding that follow your arrival, a 100M€ exit (which, let’s stress again, really doesn’t happen to every startup) would theoretically get you a 500k€ cash-in. In France, taxation on startup equity gains is a flat 30%, so you’d net 350k€, which buys you half of a nice flat in Paris. A pretty sweet amount, but let’s face it, not one you can retire with. Also, acquisitions aren’t always (are rarely) 100% upfront cash: Some of it will be cash, some of it will be equity in the company purchasing yours and most of it will be conditional to you staying onboard and/or conditional to you hitting targets. Once you’ve finally, totally cashed in, you can of course in turn use that money to start your own startup, race to a 100M€ exit and then, maybe, consider you’ve made it.
(14) The company, previously known as Loudcloud, founded by Ben Horowitz that serves as the core narrative material of his book.
(15) Please note I’m being ironic. I like branding.
(16) The model is deliberately Manichaean. A bit like perfect competition or Jungian archetypes, you’ve never encountered their pure and exclusive expression in real life, but they help you recognise patterns. With a bit more thinking and research, I’m pretty sure I’d find sub-categories of Sally and Paul, as well as Sallies who are actually Pauls — a bit like Elon Musk who sold an online payments company to fund his real dreams of space and sustainable energy. I’m not sure I could find Pauls who are actually Sallies, though 🤔
(17) For an interesting analysis of the roots of startuppy libertarianism, espisode 1 of All Watched Over By Machines Of Loving Grace (2011) is, in my opinion, a great watch. Now that I’ve said that though, I’m thinking of Sallies I know who probably hate Ayn Rand… As I mentioned in note 16, models aren’t perfect! But All Watched Over By Machines Of Loving Grace is still ❤️.
(18) Yvon Chouinard: Founder of Patagonia. Muhammad Yunus: Inventor of micro-finance. Steve Jobs: Chief Bozo-Firing Officer. Elon Musk: awkward dancer.
(19) At this point, you might make Ben Horowitz jump back on stage with his concept of Peacetime vs. Wartime CEO. I agree with it for situations where the underlying metaphysical fundamentals are clear. I think that in 2020 employees won’t go on the warpath for a company they don’t feel aligned with and if the militarism is too much, they’ll jump ship.
Having said that, it’s very important to remember that ship jumping is the luxury of a minority of highly educated and/or previously successful individuals. It’s clearly not as much of an option for less privileged sections of the population. The startup ecosystem is not a very diverse one in that way.
(20) I’m making it sound easy. It isn’t and you won’t find a single book or essay by a founder to tell you so 🙂
(21) If you haven’t read Bad Blood, I definitely suggest you do.
