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Is there life in a post-Unicorn universe?

Jan 30, 2017 by John Karp

BeMyApp's incubated startups present their products to the Club Med board.

Dreaming of creating your own unicorn venture is like dreaming of leaving your humble home in the midwest to hit the Hollywood big time. It’s so rare as to be crazy to pursue it. Sure, it happens, but for every movie star, there are millions who will never set foot on a studio lot. This comparison has become fitting for the startup landscape of 2017, where unicorns looking to eat up large corporations are dead, and ponies who want to work with them are set to rule. 

Okay, okay – working towards, and raising, one billion dollars is pretty cool. But what I’m trying to say is that one million dollars is also cool. Still, most entrepreneurs have their eyes trained on the former. If you're lucky, you get there, but even then it’s likely to end in failure. Many factors define a unicorn, but a specific trait is this: they focus on a B2C service and these require a tonne of marketing money, to advertise, gain visibility and draw customers, where fundraising is used for the sole purpose of acquisition.

 

"The 'pony' business model is much different, and, in my opinion, more likely to prove viable, and on zero investor money." 

 

What I often want to tell entrepreneurs is that I certainly respect people who shoot for unicorns, but I just don’t believe in it. To succeed – to be the next Airbnb – you need a precarious melange of luck, execution, brilliance, be surrounded by good people, and live in the right city at the right time. On the other hand, the “pony” business model is much different, and in my opinion, more likely to prove viable, and on zero investor money.

 

Unicorns are dead, long live the pony

By pony, I’m referring to B2B startups that meet a niche need and whose clients are exclusively businesses. To illustrate, let’s say I want to sell a pen. If I wish to make a lot of money selling pens, I need a lot of customers who are interested in buying them. If I want to sell pens to a big company, I know that there are 1000 people working there and, if all goes well, that I will directly sell them 1,000 pens. The reach is much larger. It’s a more sustainable model.

 

"Bootstrapping offers an attractive alternative to the fundraising grind." 

 

Furthermore, success is far more certain with a B2B startup. An entrepreneur comes up with a raw product (without funding, mind you) and proposes it to relevant businesses. Let’s say they pitch the idea and a company likes it, but it doesn’t exactly fit their needs. No mind. The next step is to work together, modifying the product until it hits the mark. Quickly launching a product teaches the startup how to better sell it. They then propose it to others, who again might require tweaks. This, as we know, is called bootstrapping and offers an attractive alternative to the fundraising grind. This is not something most startups consider because raising money is the big thing right now. But most startups don’t need to raise money, they just need clients.

Some folks are intimidated to approach large companies with their beta version, but what may surprise them is how willing businesses are to work with startups; and in particular ones that are tackling a problem they have yet to conquer. Plus, big corporations don’t necessarily have the digital and innovation skills that startups do.

 

"A pony startup relies on selling to businesses. Even as few as three customers can be viable." 

 

Three customers can be viable

The first finance will come from that first signature. Then they’re able to develop the product and make it better. Then continue to sell it to others. This is the essence of a bootstrapped business: create a product using your own funds, but use your first client money to make improvements. Right now, you don’t need a lot of money to test an app and see if people like it. A pony startup relies on selling to businesses; even as few as three customers can be viable.

We organise corporate hackathons for entrepreneurs who are currently trying to bring a pony into the world. When we do a corporate hackathon, we research the main issue the company has, then try to find devs and entrepreneurs who might be interested to partner their startup with the company. After each hackathon, there is a 2-3 month incubation program aimed to give the company and startup a chance to see if they’d like to do business together. I would advise entrepreneurs to be open to companies that host hacakthons – they’ll prove a good lead for bootstrapping your young startup.

 

John Karp

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