As anybody that has followed my thoughts for a while know by now, I am skeptical about the stratospheric valuations that too many private tech-companies have. Financing round after financing round, some of these companies have reached Unicorn status, the golden milestone of the 1 bn USD valuation, in many cases without any real profits to show and with ever growing cash burn.
This development may be problematic for intrapreneurs.
They face the huge task of having to propose new business units for the top management of established companies, that must deliver significant revenues and bottom line within short periods of time. Otherwise, the proposed projects aren’t relevant enough for the company and the project runs into a real danger of being shut down. No intrapreneur likes this. I know it well, because I have been one of them. The temptation of looking up to hyped Unicorns in order to find new relevant business units for their employer is in many occasions to strong to ignore. Suddenly everyone in the business development department is looking at these touted success stories and asking “Why can’t we do it too?” The problem with this question is that investors of Unicorns companies follow a complete different set of rules than shareholders of established companies. Their patience with the sustained losses associated to most business models at Unicorn companies (from Spotify to Snapchat) is much bigger than top managers at established companies can afford. When things get serious, most intra-Unicorns get killed by executive order.
Intrapreneurs that want to make it big for their employers and their own careers must be aware of these mechanisms. There is nothing wrong with thinking big. On the contrary , in many cases it is a must, but one has to be able of recognizing an unsustainable business model before it ever leaves the whiteboard stage. On that note, I think it can be helpful to look at an interesting list published by Bank Innovation. It reflects the common business mistakes that Unicorns make and that are even jeopardizing their very existence. If you are an intrapreneur, you just can´t afford them. (Point 2 applies to the management of an acquisition target in a business development process including M&A.)
# 1: Focus too much on the concept story at the expense of execution. You can only sell concept at the first round of funding. Beyond that it is all about execution.
# 2: Accept egregious preference terms that only work out if that hockey stick projection becomes real. Any downturn in investor sentiment leaves you with a burn rate induced deadline to close funding and then if investors start not returning your calls you will have to accept a down round that wipes out your common stock.
# 3: Use aggressive sales tactics that cross a regulatory line. Think Zenefits.
# 4: Believe in your own story that incumbents are asleep at the switch. Some are, there are enough that are not to give you real competition.
# 5: Go to IPO before you are really ready for quarterly bottom line scrutiny. The effort to do this detracts from execution and that can lead to a vicious spiral ending in a trade sale where you get less than if you had done the trade sale instead of the IPO in the first place.