Silicon Valley Camels, Will You Please Stand Up

Summary of Study

Bottom Line: Camels, not unicorns, are the best animal metaphor for entrepreneurship during this crisis. As startups manage and ultimately thrive coming out of this crisis, it will be the camel, not the unicorn that will succeed. Because camel businesses are built in some of the toughest economic environments, their value propositions are built to last. If companies can succeed in today's environment, they will flourish when this economic crisis ends. 

For decades, Silicon Valley’s model for growth has been defined by rapid customer acquisition to drive product innovation and market share.  Venture rounds at Series A and B have grown 68% and 62% respectively since 2008. At the same time, the number of days it took to close the next round has been cut in half. This means startups, at series A and B, are burning at 3 times more cash than a decade ago. Many unicorns have been built on this model and have changed the world.

However, in the wake of COVID-19 and a wave of failed IPOs, many startup leaders are questioning the grow-at-all-costs methodology that has pervaded the Silicon Valley mindset. In a world where consumer spending is slowing, revenue -- like water in a desert -- is difficult to find. Unicorns can't live in this environment. 

Enter the camel. Camel businesses are built in some of the toughest ecosystems in the world. They are built for sustainability and resilience. They turn challenges into advantages and thrive over the long-term. A camel startup fulfills the following conditions:

  1. They focus on building a product or service that serves a critical need, and they charge for the value they create – they don’t subsidize in service of growth. Their model has sustainable unit economics from the get-go.
  2. They manage costs. This means keeping the burn proportional to the business. Of course, camels grow in good times, but they can get back to a position of sustainability when they need to. Just look at the case of Grubhub which was sustainable at every venture raise.
  3. They take a long-term view. The case of Qualtrics is pertinent. Their big breakthrough happened after year 13, when they developed the enterprise model. Camels take the long-term view.

Camels shift the traditional Silicon Valley approach by taking a more balanced approach to growth. Camels are being built outside Silicon Valley, be it in the Midwest or around the world, and they are thriving.

Read the full study HERE

Feature Charticle

Kauffman Fellows

Findings:

  • Camel businesses are built in some of the toughest ecosystems in the world. They are built for sustainability and resilience. In that way, they turn economic challenges into advantages and thrive over the long-term. 
  • In contrast to Silicon Valley unicorn businesses, camel businesses take a more balanced approach to growth, without the growth at all costs mentality. 
  • In a world where consumer spending is slowing, revenue -- like water in a desert -- is difficult to find. Unicorns can't live in this environment, but camels can. 
  • The businesses that succeed in today's difficult financial environment are poised to succeed long-term. 

Read the full study HERE