FORBES: Phony Unicorns
This article by Josie Cox first appeared in Forbes on 11th May 2020
Phony Unicorns: Mythologising Entrepreneurs After Coronavirus Could Spell Disaster For Startups
If you subscribe to Joseph Schumpeter’s theory of Creative Destruction, then Covid-19 could precede an era of awesome innovation, roaring start-up success and a birth boom for unicorns.
In 1942, the Austrian economist coined the term to describe the process of dismantling established practices in the manufacturing space to free up resources for innovation.
Henry Ford’s automobile production line is perhaps the most commonly cited example of creative destruction, but through the ages - and as markets have ebbed and flowed - it’s become a popular explanation for why new businesses tend to spring up during, or in the immediate aftermath of, economic crises.
General Motors, Disney and IBM all started in the doldrums of a recession. So did Hewlett-Packard and Microsoft. Google was born on the eve of the dot com bust while both Uber and Airbnb launched in 2009.
With Covid-19, there’s no doubt we’re experiencing Schumpeter’s idea of destruction.
Horrendous data only hints at the real and lasting human toll. Supply chains and consumer bases have been decimated by swathes of the economy going into effective hibernation and business launches have ceased. Across the UK, for example, new company formations were down by about 25%, or 30,000, during March and April compared to the same period a year ago, according to marketing agency The Mailing Co.
But in the months to come we will tentatively recover and as we do, new ventures will appear. If Schumpeter is to be believed, creativity will flourish. True success, though, will depend on a founder’s ability to stay grounded. Our dangerous desire to mythologise entrepreneurs might understandably peak when we see a real-life phoenix rising from the ashes or a bullish unicorn rear its pretty head.
No Lone Wolves
Louise Nicolson’s book, The Entrepreneurial Myth, examines why our love of storytelling, myth and metaphor has led to a societal deification of entrepreneurs. It argues that this can have a detrimental effect, not only on individual founders, but on whole financial ecosystems.
Accepting that a human - with real human needs and emotions - is behind every business, may well be most important during times of crisis, particularly when, as Nicolson describes it, “reality feels like it’s twisting away”.
“We mustn’t spin this virus with entrepreneurial bravado,” she says. “We can’t hustle our way out of it. Measured reflection and a contemplative approach to business, will refine the decisions you’re going to have to make. Just you and a piece of paper. Seeking clarity not churn as you prepare to save the day.”
The author says that one of the most common iterations of the entrepreneurial myth spins the lie that entrepreneurship is for “lone wolves, heroically, magically, defeating markets and pulling success from their guts”.
Instead, as Covid-19 passes, the economy regains a footing, markets reopen and sentiment starts to repair, anyone starting a new business must remember that it’s “a group grind, demanding a range of talents and characters”.
“Real business needs partners, curators, operators,” Nicolson says. “There is more at stake now. And collective intelligence and teamwork trumps individualism.”
Of Purpose and Yogababble
Staying grounded when the euphoria of survival kicks in, also means being able to resist overpromising - or promising something so abstract that it becomes a distraction.
Covid-19 has led to a surge in corporate commitments to being “purpose-driven” and acting for the greater good, but definitions are frequently vague and concrete pledges rarely materialise.
Scott Galloway, author and a professor of marketing at the New York University Stern School of Business, in recent years coined the term Yogababble to describe the vacuous verbiage new companies sometimes use to dazzle prospective investors.
His Yogababble Index correlates the use of what he suggests to be such nonsensical rhetoric in mission statements against a company’s equity performance after listing on the stock market.
Galloway deems Zoom’s mission statement, for example - “to make video communications frictionless” - to be accurate. Zoom’s stock appreciated more than 100% over a six-month post-IPO period. But Peloton’s mission statement - “on the most basic level, Peloton sells happiness” - is met with about as much approval from Galloway as it’s shares were met by investors when they debuted.
A degree of hubris is encrypted in the DNA of most entrepreneurs. Market valuations have been propped up by a brand’s ability to address consumers’ wildest aspirations - to flog the promise of a lifestyle associated with a product rather than the product itself.
When investors and consumers emerge battered and bruised from this crisis, they’ll be quick to buy into anything offering hope, happiness and nonchalance. Absence of tantalising opportunities to invest, famously make the heart grow fonder and that’s how unicorns are born.
Yield hunters will lap up a heroic story of valiant survival and slain dragons. But it’s decent products and dependable cash flows that make for true operational resilience. Purpose will prove to be the real myth if we can’t get those basics right.