Back in 2013, when VC Aileen Lee coined the term unicorn for startups worth $1 billion or more, the name caught on quickly. It perfectly captured the allure of Silicon Valley's huge dreams and outsize tolerance for risk in pursuit of a magical moneymaker.
But according to a new book by Lee's fellow VC Alex Lazarow, the ideal of the unicorn didn't just capture the upside of the Silicon Valley model. It also captured its weaknesses. Now that coronavirus is laying these bare, Lazarow suggests a less glamorous mascot for founders. Ditch the unicorn hunt, he argues, and aim to become a camel instead.
Unicorns don't weather disasters well.
According to the meticulously gathered data by online tracker Layoffs.fyi, as of this writing nearly 50,000 startup employees have lost their jobs since the beginning of March. That carnage reflects the tsunami of job losses roiling nearly every region and industry thanks to coronavirus, but the pandemic isn't the only problem afflicting startup land.
As Quartz's Anisha Sirkar explains in her write up of Lazarow's book, Out-Innovate, the issues with the unicorn-hunting approach to startups precede the pandemic and go deeper than any one shock. The current crisis just means the tide is out and everyone swimming naked is suddenly visible.
Sirkar writes, "Lazarow likens Silicon Valley's unicorn-hunting strategy to mortgaging your home to buy three new homes: If things go well and the market moves in the right direction, the rewards are massive. (Case in point: Facebook.) But this approach also increases the risk of losing everything."
Unicorns, in other words, offer a nearly magical level of potential upside, but they're also fragile creatures. "The burn rate at startups in Silicon Valley is the highest it has been since 1999. And more people are working for money-losing companies now than in the past 15 years," Lazarow's data shows. When that fragility met the mother of all disruptions in the form of a pandemic, slaughter ensued.
A hardier alternative
There are better models out there, insists Lazarow, who studied startup ecosystems outside the top tech hubs extensively for his book. His work looking at startups in less-chattered-about ecosystems, from Detroit to Brazil, has led him to a simple conclusion: It's far less glamorous, but way better, to aim to be a camel rather than a unicorn.
What's a camel (besides a humped, desert-going dromedary)? Rather than a startup that aims for huge, investor-enriching growth at nearly any cost, it is a company that's built to offer real, meaningful innovation and survive for the long haul without constant infusions of cash. Both Lazarow's book and Sirkar's article are packed with examples.
"In the Valley, a unicorn is not just a numerical value of a billion-dollar business, it's also a philosophy," Lazarow tells Quartz. "Around the world, the best entrepreneurs are taking the opposite approach. They're saying, 'I want to have sustainable economics from the get-go, manage costs, and still scale, but scale responsibly.' From a risk-adjusted outcomes perspective, you get there more successfully, more often."
It's an argument that he must have been developing for years to have a book ready now, but his case for a more resilient, more socially meaningful model for startups -- more camel, less unicorn -- is looking particularly prescient thanks to the current crisis.