10 reasons why start-ups should aim to be CAMEL rather than UNICORN
Businesses are feeling the heat due to the pandemic caused by the rise of the COVID-19 virus. Additionally, the consequent national shutdown has brought most businesses to a halt with no clear direction. The most impact can be seen on start-ups. In the US, half of the start-ups engaged in layoffs and have terminated less than 20% of the workforce . In 2020, we again face a significant economic downturn, challenging the ability of economies and the creative capabilities of start-ups to sustain themselves.
Since the beginning of 2020, we have heard a lot of dismal news surrounding the start-up ecosystem, mainly towards the start-up unicorns. Unicron is a term used for a privately owned startup company valued at over $ 1 billion. In 2013, the word was coined by venture capitalist Aileen Lee who chose the mythical animal to represent the statistical rareness of these valuable ventures . Similarly, Decacorn is a term used for companies that are valued over $10 billion, while Hectocorn is used for a company worth more than $100 billion. When Aileen Lee first coined the word unicorn in 2013, only thirty-nine firms were recognized as unicorns.
Unicorns are leaving the race
Startups raise and spend huge amounts of capital to invest in growth, often subsidizing consumers' costs to drive higher usage which leads to the high cost of customer acquisition. For instance, SoftBank Corporation has invested over $7.6 billion in Uber and $7.5 billion in WeWork in the last three years intending to drive growth .
Reasons for the rapid growth by Unicorns
Get Big Fast (GBF) Strategy: According to analysts and academics, investors and venture capital companies are following the get big fast (GBF) strategy for startups. GBF is a tactic where a startup seeks to grow through broad funding rounds at a high pace and cut the price to gain an advantage on market share and take a lead over rival competitors as fast as possible.
Company buyouts: Many unicorns were created through buyouts from large public companies. Cash-rich companies like Apple, Facebook, and Google focus on acquisitions instead of focusing on capital expenditures. These blue-chip companies would rather buyout start-ups than creating new technology or business models themselves.
Technological breakthroughs: Startups are taking advantage of the new technology of the last decade to obtain Unicorn status. Innovations in technology including mobile smartphones, P2P platforms, and cloud computing has aided the growth of start-ups.
For Unicorns like Uber, WeWork, Airbnb, Oyo, etc the focus by the founders has been on growth over profitability. Recently, the SoftBank group published that its Vision Fund businesses lost around $17.7 billion in the last fiscal year 2019 after writing down the value of its investments in the two unicorns, WeWork and Uber . In an economy with a weak financing outlook, the days of running cashback to acquire users may not be feasible and would need an alternative model that has profitability at its core. Start-ups need to now ditch the UNICORN status and adopt being a CAMEL that survives in harshest conditions and still proves productive.
The founders of Camel start-ups recognize that starting with a strong base that will last, is a basic fundamental in creating a successful company. The entrepreneurs of camel start-ups show us that an alternate model does exist. While these start-ups still follow and expand rapidly, they balance it with other goals such as cost control and a fair price for goods and services. Entrepreneurs harness network effects and enjoy enviable rates of growth. However, their scaling trajectory may not have the same perfect exponential “J Curve” growth. Instead, the focus is on sustainable growth from inception.
Alexandre Lazarow in his article quoted
"In emerging markets are companies we can learn from because they have survived harsh business climates with less capital and ecosystem support. These startups are more akin to camels for their ability to adapt to multiple climates, survive without sustenance for months, and withstand harsh conditions. And unlike unicorns, camels are not imaginary creatures. They are real, and they are resilient."
In this article, I will relate 10 characteristics of a CAMEL that can be adopted by startups to build a profitable business:
1) Body Temperature
A camel can adjust its body temperature to adapt to the environment thereby conserving body fluids and avoiding unnecessary water loss. Similarly, a start-up needs to be agile and adapt itself according to the market conditions.
Camels come in every shade of brown, from cream to almost black. Likewise, a start-up should also have multiple portfolios in the market. For example, ZOHO CRM is available for blue-chip companies as well as small start-ups.
A camel’s ears are small, but its hearing is acute. Similarly, a start-up needs to have its ears open and to the ground for consumer feedback, regulations, and policies by the government. Only when you listen attentively, you will be able to make the right decisions.
Camel’s have a sharp vision and their eyes are protected by curly eyelashes that also help keep out sand and dust in the desert. In the same way, start-ups need to have an eye on the market movement that may be caused due to external factors like the current pandemic. With early signs of disruption, the start-ups need to respond quickly and come up with a defense strategy to safeguard its position.
Camels have strong feet that are needed to carry weight. When the camel places its foot on the ground the pads spread, preventing the foot from sinking into the sand. Similarly, start-ups need to have their feet on the ground after raising capital. With several rounds of funding, the valuation increases and so does the pressure to turn profitable.
A camel can go 5-7 days with little or no food and water and can lose a quarter of its body weight without impairing its normal functions. Likewise, start-ups need to build cash reserves that will help the company to stay afloat in tight economic conditions and a weak business environment. With COVID 19, one of the major factors impacting start-ups the most is low cash reserves which are resulting in layoffs of their workforce.
7) Hard Skin
A camel has dry skin which is needed to survive the extreme temperature in the desert. For start-ups, hard skin is a strong business model. More revenue streams better for the start-up as it can help maintain the cash flow in tight situations. For example, a start-up in the education sector that has online learning apart from the traditional on-site in its portfolio, the cash flow isn’t much impacted.
Camel does not store water in its hump, contrary to common belief. The animal draws energy from a mound of fatty tissue when food is not always easily found. For start-ups, the hump will be its strong customer base. For start-ups, if the percentage of repeat customers is higher as compared to its competitors, it will act like a hump and help the company to perform better even in the worst economic conditions.
9) Meat and Milk
Camel’s milk is lower in fat and lactose, and higher in potassium, iron and Vitamin C. Also, camel’s milk is considered to be the most expensive milk due to its high demand and low supply. A camel is not only used as a carriage and for milk but also its meat. Similarly, a start-up needs to have at least one cash-cow in its portfolio that can play the role of either milk or meat.
A fully grown camel can weigh up to 700 kgs. The capacity of the camel has been well documented over the centuries and its niche in human history is proven. A start-up should have a focus on profitability rather than rapid growth. Also, the mindset of the founders needs to be like a camel and not as an imaginary animal unicorn.
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Lazarow, A. (2020) ‘The New Hot Startups Will Be Camels, Not Unicorns’, Medium. Marker, 27 April. Available at: https://marker.medium.com/the-new-hot-startups-will-be-camels-not-unicorns-53d480535916 (Accessed: 28 May 2020).