I got my Business degree about five years ago. It had been some four tough years, juggling between two majors (Business and Computer Science). I came out of college with little life experience, but lots of principles in my head. At the time, I thought I knew what “building a business” meant, and I wanted in. I wanted to make a tech startup, build great products, and make my customers happy. Because, that’s what a business does, right? It profits by building valuable products that make customers happy. Right?
Nope. Rather, the majority of your time building a startup nowadays, involves convincing a small group of people (investors) that your company is worth way more than it is. That’s pretty much there is to it. Fine-tuning an image, by skipping business development altogether, and solely focusing on growth instead. The more users your product/service has, and the faster you get new ones, the bigger the valuation of your company gets.
What about real customers and steady revenues, you ask? Who needs them? In fact, having a steady revenue flow makes investors back off. Apparently, it serves as a signal that your business is going to stop growing. Since growth is the most important thing in the Startup Universe, focusing on building real customers relations automatically puts your business in the category “yesterday news”. Crazy, isn’t it?
Chasing the Unicorn
Silicon Valley has made startups a disfavor, by coining the term “unicorn”. Shortly after the 2008 financial collapse, many investors showed their backs on companies like Uber, AirBnb, Snapchat, Whatsapp, Spotify, etc. All examples proved their early rejectors wrong, and went on to become multi-billion-dollar successes. Realizing the opportunity they missed, investors have been on the hunt ever since, chasing every potential opportunity to make up for their mistake. They have been on the hunt for the next “unicorn”. In their effort not to miss another AirBnb or Uber, investors have lowered the barrier to entry, to just about any idea that promises to become an overnight success. How the idea turns into a viable business is of second importance, what matters is having it in your portfolio, before your rivals jump on board.
I’ve been told several times that there has never been a better time to obtain venture capital. No wonder. I can start building just another service that does “Uber for X”, and jump on the train. Yet, try to build something meaningful, something with a clear goal and a carefully laid out business plan, and you are quickly shown the door. There’s only so much growth you can promise in a consumer-driven business.
Besides the fact that it looks like another bubble, I find all of this kind of saddening.
Evernote, Dead Unicorn?
Tech media love creating drama and stirring the waters around companies. A company goes out of the celebrity radar for a while, or decides to make a management shift, and suddenly, it gets pronounced dead prematurely. For media, it’s all or nothing, your business is either a “unicorn”, or a “dead unicorn”. For a while, there have been speculations which the first “dead unicorns” will be. Just in time, stories about Evernote falling off the list started appearing.
Clearly, controversial titles bring in fresh ad revenues, but they work at a disservice to both readers and businesses. Calling a company a “dead unicorn” sounds as if it is going to close shop any time soon. Not even close. I felt the need to bring in my sense of sanity to this discussion.
A “dead unicorn” means simply that a company has gone past its peak potential to grow exponentially. This is absolutely normal after all. One who has written a couple of business plans knows that an important part of the plan itself is the estimate of maximum target audience. Whether you produce digital goods or not, at the end of the day, there is a maximum numbers of users your business could ever reach. Even if it were theoretically possible to target each and every individual on the planet, one’s business would eventually become dependent on the rate of population growth. And believe me, most businesses greatly overestimate their target audience, considering one-time bystanders, part of their potential user base.
Of course, it is possible to acquire new target audiences by introducing additional features, acquire key companies, or enter strategic partnerships. Yet, as with other things in life, one comes at the cost of another. Stretching too far out, leaves a business with an even shallower market proposition, leading to new users willing to invest less of their attention on the product/service. Ultimately, in one way or another, things come back to square one.
So, in a way, getting out of the list of the blessed, means that it’s time for the business to mature and start functioning like … well, like a real business does. That’s right, it is time to make the masses start paying for their lunch. Yet, it is one thing to gradually start doing so as the business grows, and quite another, when the business has reached the point of no return. Giving too much for free, can be as detrimental to the business model at a later stage in life, as giving too little right at the start.
Evernote knows this quite well. A valuable product, known for its large ratio of free users, vs. paying customers. The reason: for years, Evernote has been focusing on growth, providing free users with so many features that it has made no sense to switch to a paid plan. I have been a long-time user of Evernote, and used to pay for Premium too. Yet, I have always done it more because of a sense of loyalty to the company, than because of a Premium feature I really needed. Loyalty alone is not a compelling enough to make people pay for a product/service. So, I switched back to a free plan, and nothing really changed. It would be much harder for the company to bring me back as a paying customer.
Even more so, because I have not seen a significant improvement on some core functionalities, which core users have been raving for, since version 2. Meanwhile, during the last few years, I have seen all kinds of features and additional services appearing in the Evernote ecosystem. All coming down to show that the company management won’t invest in maturing its long-time users to paying customers, as much as it would in attracting new free users. Of course, one can’t blame the management realizing that the situation is just a byproduct of the whole “go for growth” trend set by investors.
So, is Evernote a “dead unicorn”, the way investors and media see it? Perhaps. Will it die as a company? No. It will just have to work hard to convert more of its free users into actively paying customers. It has a mature enough business to stop calling itself a startup, and start working like a real business. Indeed, it is a less flashy future than being on the front pages of tech media sites every week, but not the least a less valuable and fulfilling one.
What’s the moral of the story? If you want to start a business, strive to bring in something valuable to the world, and don’t try to conform, if investors turn their backs on you. Focus on realistic growth, and make it clear to people, what value your business will bring to them. Make customers happy and they will gladly pay for your products in return. If you really believe in your idea, your business may indeed reach a unicorn status, but of the good kind - the long lasting kind. The one that withstands media and investor speculations.