Often the success of a disruptor is a race between them figuring out scale before the incumbents can innovate and change. So growth is good and dare I say even essential to the success of startups that are trying to change the status quo of so many industries.
It is the growth at all costs mindset that has led to the recent, spectacular failures which we certainly need to root out from the entrepreneurial ecosystem.
There is a generation of founders who don’t know anything about building a business that can last without having an unlimited supply of capital. Their measure of success has always been keeping up the growth through often short term oriented practices.
I feel that failures of Wework and some of the other high profile, so called “role model” startups were drawing attention to these issues, but the events of the last few months have certainly exposed the faultlines completely and rightfully so.
Pumping cash into a portfolio of businesses in vain hope that one might become a unicorn by brute force — with all others expendable — does a disservice to the real people whose dreams you are funding.
Consequently, hyper growth-focused startups have become publicly traded companies without ever sorting out their unit economics. Now their mediocrity is starting to show and they have to make layoffs. These are real consequences for real people.
Treating businesses as an emotionless, pure asset, rather than the sum total of a founder’s aspirations, is an approach we as an industry must reassess. It’s time for a change.
In Jungle’s early days it was hard to go against the trend and make only five or six investments a year. There are generations of VCs who are trained to believe that having a very large portfolio and growing valuations are the two most important criteria to be successful in the venture industry.
However, we are relieved to see the tide turn, albeit slowly. There are more investors who are interested in patient, long-term capital and quite a few more funds are now structured on-balance sheet, which means they don’t have to be constantly raising new rounds. Supportive institutional funds around the world have a significantly higher appreciation for the value of long-term investments as everyone has a renewed focus on sustainability and inclusiveness. There is some light at the end of this tunnel but I am only cautiously optimistic that we all will learn from past failures.
What will be critical to the long term success of Founders is their ability to learn, adapt and guide change in the organization. Those that will be able to absorb information and act decisively will have an advantage as the next few years could be quite volatile. The most successful businesses will also be those that have built teams that are aligned on a culture of collective good.
Technology no doubt has been potentially the largest beneficiary of this unfortunate crisis. All around the world, consumers and enterprises are realizing the true potential of leveraging digital technology. From being able to order essential supplies over online platforms to finding better productivity and work life balance via work from home, these are all significant changes in behaviour and startups are at the forefront of this tectonic shift. I expect tremendous organic growth in most industries and teams that balance this windfall whilst still maintaining good business practices, as there could be another crisis round the corner, are the ones that will emerge as once in a lifetime value creators.
We’ve counselled our portfolio companies to build to last since day one and the current crisis has revealed which companies have created strong foundations and lasting value. Those that haven’t will fall by the wayside.
The crisis should be a wake-up call for those investors and founders who think that growth at all costs is the only way to build a business.