By Harrison Greenspan
Silicon Valley has been a place where aspiring companies want to transform into the next big and flashy unicorn, one that flew to heights that only a magical unicorn could seemingly reach.
A “unicorn” company was coined in 2013 by venture capitalist Aileen Lee, who thought a magical creature, such as the unicorn, best represented the rare and unrealistic possibility of a privately held startup company to reach a valuation of one billion dollars—an amount you might only find by riding that unicorn over a rainbow to a pot of gold.
Nonetheless, the unicorn seekers trudged along, chasing ambitious growth targets by adhering to high-risk ideologies such as “blitzscaling,” and simply burning through millions of dollars of venture capital per month, all while trying to dominate the already highly competitive, winner-take-all markets such as Silicon Valley. The goal is to simply overwhelm the competition in an impacted market by expanding as quickly as possible, whether it is by means of cutting costs or ambitiously large funding rounds.
Taylor Offer, a successful Entrepreneur who started a multimillion-dollar sock company, named FEAT, recently shared revenue and valuation statistics displaying how unicorn company valuations are quite frankly overvalued.
2019 Revenue: $900M
2019 Net Loss: $450M
2019 Revenue: $1.3B
2019 Net Loss: $18.6M
Even though DoorDash lost a whopping 450 million dollars, their respective valuation came out to be more than double that of the valuation of Grubhub, a company that not only received more revenue, but also lost significantly less. As Taylor Offer exclaims in a tweet, “Make less revenue and lose more money to get a higher valuation!”
Mike Evans, the cofounder of food-delivery service Grubhub, has said that he and other managers within the company ignored what he called “growth-centric vanity metrics,” the very same metrics that unicorn companies seek. Instead, he and other managers within Grubhub strived to make the business sustainable (either profitable or close to profitable through minor cost cutting).
While the fantasy of achieving unicorn company status encourages reckless business strategies, the consequences of such risks have become a reality rather than a business judgment decision in pursuit of unicorn status during the current pandemic. This notion has finally begun to set in for the vast majority of startups and small businesses looking to expand. The days of taking risks by ascending too quickly may be gone, as the business world has potentially changed forever due to the current pandemic.
However, the most unexpected of foes tend to breed the most likely of heroes. If you are looking to launch a small business, do not attempt to fly (or grow) at such rapid ascents. Do not fly like a unicorn, strut like a camel.
Thus, the age of camel companies is before us, encouraging mindsets and models of reliability, sustainability and resilience. Unlike the seemingly magical unicorn company, a camel is real, as its goals are attainable and realistic.
As a camel treks through an unforgiving and seemingly endless desert, it does something that a unicorn can never do: manage its water and survive a drought-ridden wasteland of meager opportunities. A camel company does the same by managing its costs and surviving a drought such as the current pandemic.
Hiring Employees or Personnel
Throughout the life of a camel company, managing costs is imperative to synchronize with the ebbs and flows of the market. As an example, new hires need to be warranted by increases in revenue and expansion of operations. Be honest with why you’re hiring new personnel, as it needs to have a legitimate means to an end. A cost-benefit analysis in this situation is useful.
Questions you should be asking yourself include but not limited to:
· Would there be an increase in productivity, potentially driving sales volume and increasing a company’s gross income?
· Does the company need a creative spark by adding new personnel?
· Does the company need more personnel to meet the market demand?
· Will the newly hired personnel provide a favorable return despite the fact that your business will have to not only provide worker’s compensation insurance, but also offer employee benefits, such as retirement packages, sick leave, vacation time, as well as medical and dental premiums?
In addition, a camel company’s marketing investments need to provide a legitimate means to an end. As such, investments in marketing must be measured appropriately as your camel company grows. For example, over-reaching marketing campaigns merely looking to make headlines is too risky and would not be justified if your profit margin is lacking. A camel company understands making headlines does not necessarily result in profit or increased sales. Thus, every marketing decision should be backed by your due diligence of research, as it can save time and money by calculating how a marketing campaign will perform before it even launches. It’s absolutely necessary to weed out ineffective ideas, which in turn help you understand how the public responds to your product, effectively and indirectly managing costs in the process.
A common marketing mistake is when companies subsidize their products. Companies think it’s a clever idea to use what minimal capital they have by hedging the bet that subsidizing their product will correlate into rapid growth of their customer base. The hope is that by investing in growth, such as subsidizing costs, the rate of growth will push revenue to new heights. Accordingly, companies that judge their success based on their rate of growth, and ultimately their valuation, will typically overlook costs and paths to profitability. The result is ordinarily binary: the company will either enjoy massive success or face complete failure. Nevertheless, this is a major issue in an era when the market is a dry and barren desert due to the unknown length of the pandemic at hand. Coincidently, a phenomenon called the “Valley of Death” is exponentially exposed for the worst during these trying times.
The Valley of Death refers to the incredible difficulty of surviving the negative cash flow at the early stages of a startup, at least until sufficient sales volume is met to fund operations, and the company eventually becomes profitable. However, we are currently living in a climate substantially more deadly in what we can call the Valley of Covid-19. Here, the risks are exponentially higher, as costs to run a company remain the same while profit sales and customers are drying out. However, as a camel company, you are prepared for the journey, as you do not make the familiar mistakes of those aspiring to be unicorns. Instead, you are a resilient and reliable camel.
A camel is resilient, as nature has given it attributes that are tested day-to-day. Its feet contour various treacherous landscapes, such as withstanding sandstorms and trekking for days without regular water breaks; its energy output is measured. As a camel company, resilience comes from a commitment to sustainability for the long-term. Embarking through the Valley of Covid-19 is dangerous in itself, but you have no choice if you are to survive.
Fortunately, there are some benefits to trekking through such a barren climate. If you are a startup, time is now aplenty, allowing you to take the time to refine and commit to your customer relations. And even if you are only serving a handful of customers, as you might be a newly formed startup company, fully understanding what a customer wants out of your product is key to building strong foundations that will build upon one another.
To build these strong foundations, build rapport with your customers by personalizing the customer experience. Whether it is regularly reaching out to them or personally hopping onto a Zoom call to attend to a customer’s needs, all of these interactions will make the experience more memorable for your customers. In a time where in-person interaction is at a minimum, attention to customer satisfaction should be present on every avenue of communication you are offering, such as social media accounts (e.g. Facebook, Twitter, Instagram), emails, over the phone, or through videoconferencing (e.g. Zoom or Google Hangout). As such, make sure there is an available platform besides email in which customers can provide feedback on their experiences with your business and respective product. This feedback can be streamlined through a customer survey sent to your list-serve or on third-party websites that focus on reviews, such as Yelp or Facebook.
Whether or not your customers are expecting a response, simply taking the time by responding to all inquiries or comments will make your customers feel valued. Evidence from research and studies shows retaining customers is more cost-effective than finding new ones.
Research and studies have shown that:
· It is 7 times more expensive to acquire new customers instead of retaining existing ones.
· Repeat customers are worth up to 10 times the value of their initial purchase.
· It is 6 times easier to sell to existing customers versus new customers.
Thus, attending to current customers is of upmost importance. However, it is important that you do not “copy and paste” that same response over and over again. In contrast, you should be responding with specificity, which in turn shows your genuine concern and value you have for your customers. The last thing we want to do is potentially insult a customer’s intelligence. To apply and genuinely project these principles to all of your customer responses, a camel company will:
· Respond to the specific issue, concern, or comment (even positive ones!)
· Offer an apology (if that comment is not positive in any way) that is specific, and subsequently acknowledge any mistakes on your end
· State specifically how you intend to or have already done to make it right. Put yourselves in their shoes and ask yourself what you would want from them to cure a mistake or bad experience.
· Propose how you will specifically improve the customer’s experience in the future.
When customers see that you are genuinely responding to their questions or concerns, they are more inclined to invest in your product. From the customer who keeps in contact with you on a daily basis, to the customer who has never reached out, treat every customer with the same level of experience. Repeat customers, referrals and former customers can be huge and reliable assets in moving your business in a positive direction.
There is merely no harm, only benefits, in building rapport when there is little you can do other than survive the Valley of Covid-19. If anything, remember that you cannot strive for high valuations before highly valuing your customers. Do not fly like a unicorn company, strut like a camel company.
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