Emerging World of Entrepreneurship: Unicorns and Billion Dollar Start-ups

The successive waves of Entrepreneurship that began with the initial capitalists when countries were industrializing, and then continued with the advent of the Digital Age, has now reached a stage where eCommerce companies and Smartphone App based aggregators and businesses are the leading forms of entrepreneurship.

In this context, it is worthwhile to note that the companies such as Uber, AirBnB, and Alibaba in the United States and China, Flipkart and Zomato in India, and Amazon worldwide represent the latest wave of entrepreneurial startups that have gone on to become famous and attract Billion Dollar funding.

Indeed, it would not be an exaggeration to state that the Entrepreneurs behind these ventures and startups have literally shaken the existing market models to the core and disrupted the way business is done both in the developed and developing world.

The media is full of stories and coverage about these “New Age” ventures that have emerged from nowhere and have attracted Billion Dollar valuations and funding from deep pocketed angel investors and venture capitalists.

Indeed, the media has coined a term for the hottest of these startups by naming them Unicorns after the Mythical creature that could fly and do no wrong.

Further, the eye popping funding and the high and steep valuations can only mean that going forward there would be more entrepreneurs who would like to emulate and follow the success stories as role models.

Having said that, it must also be noted that this “irrational exuberance” that is being witnessed now is reminiscent of the late 1990s and the early 2000s when the Dotcom boom was at its peak where it was jokingly said that anyone with a website and a basic business model could attract funding from VCs and Angel Investors.

Therefore, one must indeed be circumspect when evaluating whether the stratospheric valuations of the Unicorns are indeed justified or they represent the investment of excess liquidity as a result of the ultra loose monetary policies of the Central Banks of the world in the decades leading to the 2008 crisis and succeeding years when it was thought that the only way to stimulate growth is by pumping money into the system.

In other words, the point that is being made here is that since the Federal Reserve has held rates at or near Zero for much of the last decade, it is worth remembering that this has resulted in more money being available in the system and some if not all of which is finding its way into assets worldwide that includes investments in Unicorns and other eCommerce companies.

While not downplaying the sound business models of Unicorns such as Uber that have well and truly disrupted the status quo, it is the case that one must balance these aspects of easy liquidity with that of whether the Unicorns and those ventures that are being led by entrepreneurs with “stars in their eyes” are indeed worth the investments.

Another point that needs to be made is that for many eCommerce startups in emerging economies such as India, their current strategy is to engage in a price war with their competitors in a “race to the bottom” marketing and business strategy wherein many of these ventures are “burning money” or what is known in industry jargon and parlance as “burn rate” meaning that they are losing money just to attract new customers and retain existing customers by offering never before heard discounts.

Indeed, anyone who has shopped online or on mobile in the last few months in China, India, and to some extent the United States would have noticed the discount during holiday periods and seasons that extend to 50% or more which as any businessperson would tell you are simply not sustainable.

The idea behind these discounting wars is to build up a loyal and wide customer base that would keep coming and returning for more once they are “hooked on” and then increase the prices so that the market share that has been built up cannot be eroded even when prices are raised.

Indeed, this is the strategy that has been followed by the “poster child” of the Unicorns, Uber that has ensured that once it gains market share, then it would engage in pricing that is more realistic and based more on business fundamentals.

Thought this sounds like a good business strategy, one has to remember that there can be other new entrants who flush with funding can also engage in price wars so that by now established Unicorns are given a “run for their money”.

At the risk of sounding pessimistic, all that we are saying is that there must be more realistic assessments and evaluations from this “new generation and new age” entrepreneurs and their funders so that a repeat of the Dotcom bust that happened a decade and half ago is not repeated.

To conclude this article, it needs to be reiterated that while some genuinely disruptive Unicorns are rewriting the rules of business, there are an equal number of them that are simply walking on air thereby raising the possibility of them crashing to the ground once the euphoria dies down.

In other words, businesses must make money and profits and investors must get returns on their capital and investments at some point in time and hence, as any business management theory would tell us, only companies with sound fundamentals “make the cut” ultimately and this is something that applies to the Unicorns as well.