Unicorns musn’t fall into the trap of the one trick pony
In the last 8 months I have been to see a lot of companies, big and small, and almost always the conversation has meandered from Google to the current set of Unicorns and what the future portends. I thought of writing all my thoughts down, then realized I have too many — so I’ll do it in phases. Here is the first stab — additions and edits welcome.
Having had the opportunity of working with Larry Page, I have been privileged — privileged because I got to work for one of the greatest entrepreneurs in the world, and because I was there when the company’s culture, team and organization were being shaped.
It’s worth reading one of his rare interviews in WIRED, in which he highlights the principles Google is built upon. He talks about innovation and how big bold bets and ideas often trump incrementalism. He thinks that there is something fundamentally wrong in how we run companies. Sales teams, lawyers, and worrying about competition in and of themselves have never created a winner and he’s right, as much as it pains me to admit it.
It was very clear during my time at Google that the business team were going to be great facilitators, but they were unlikely to be the heroes! We were there to operationalize ideas, and make sure users, customers and partners got to access the innovation being done at Google. As our prize we got to participate in this collective process of delivering cool technology solutions to the world.
The true innovators were the ones who were obsessing about new ideas and new experiences, the ones who were busy challenging the status quo, developing new ways of doing things, and changing the computing paradigm. No challenge was unworthy or too complex. Larry wasn’t far off from Steve Jobs on product design and experiences. To Steve, product was supreme and design wasn’t what things looked like — it was how they worked. Larry and Steve disagreed on other things, but on this they shared a common view: In the end, it’s about the “product and how you experience it.”
I fear that a majority of today’s unicorns may not make it all the way to their potential — and instead will end up being a “one trick pony.” That’s because some of them are forgetting that innovation created them, but not continuing to pursue it vigorously can also be their downfall.
Innovation is not done and over when you raise your big round, nor is it done when you have 100 million users. That’s when the fun has just begun! The last set of innovations that you created form the new basis for expectations by the users. It is now time to accelerate, take bigger bets, and double down on the product experience. It is time to scale operations.
In the early days of Google, I remember clicking on many pages to get information. Today I expect the first result to be the right one. And tomorrow we will be getting suggestions as we think of questions. You have to innovate both in your core offering, and you have to innovate laterally into areas that could take your users away.
As you succeed, the bets need to be bigger. You have little room for failure. Google conquered this by scaling fast, hiring the best, and creating a culture where innovation, boldness, straightforwardness, and having a high moral compass were rewarded. These values are important, especially the moral compass part — organizations take on the form of the leaders. It’s not what you write on the walls, it’s how you live what’s written on the walls. If one reflects on the cultures of the unicorns of our times, it’s pretty easy to map organizational culture to the principles and moral backbones of the founders.
I think we have some amazing examples of founders who have followed these principles relentlessly and created great companies: Facebook, Netflix and Amazon are our obvious examples. And Apple and Microsoft are back in the ranks, as they continue to transform themselves. But many others have failed the “innovation,” “scale,” or “values” test.
THE UNICORN LANDSCAPE
As we look at the global landscape, the unicorns come in different flavors:
1. Technology-based products like Google, Facebook, Snap etc. They invented a new thing, something that we didn’t have before, and which resulted in a new consumer need or service.
2. Those that invent a new way of doing the same thing, enabled by technology e.g., Airbnb, Amazon, Uber, fintech companies, etc.
Both have one ambition in life: to gain more and more customers, and become the “must have app/experience” or to become the ultimate brand in that space.
Google transcended that goal when we stopped remembering things and started Googling. Facebook made it when, if you were online, you were on Facebook. Amazon is getting there as they become the first port of call for anything you want to buy. Amazon has successfully navigated reengineering an existing industry, reducing friction, expanding the market and increasing convenience. The good news is anything that takes longer and more effort, creates a moat — or a barrier to entry for other entrants. The jury is still out on Snap, Twitter, and a whole host of others.
Companies that involve atoms are harder. There are many in this category we classify as marketplaces — travel aggregators, hospitality, transportation, etc. In addition to becoming the cohesive and ultimate destination/app — two things matter in the world of atoms — a large network, so large number of buyers and sellers, and keeping demand and supply in lockstep. This is where a lot of execution challenges come into play, and one has to navigate a variety of business variables. Often the competitors in these sectors are monopolists or scale players of the past. They mobilize to compete with these new category unicorns, but often they are a dollar short and a day late. In my opinion, demand and supply matching has not been perfected, nor have many understood the notion of customer segmentation perfectly, but there are signs that this will change soon.
Companies in this space must take lessons from Amazon, which has spent its life perfecting the customer experience. Every dollar is spent constantly iterating, building competence, technology, collecting data, and building moats. Amazon-like companies are created as real businesses from their onset — it’s existential, they compete with existing economically motivated players. Usually their advantage comes from one or all of the following:
- Efficiency of resource utilization — now we can utilize cars on a per ride basis, or at home on a per day basis.
- Elimination of friction and market expansion — if I can find it easily online, I can book it easily. Then I begin to rely on it, and give up on my inefficient option.
- Matching demand and supply. Over time I can understand where the need is and work on creating supply only there and not everywhere.
- Infinite inventory — Done right there are no costs to listing lots and lots of items.
- 7 by 24 — Open all the time.
Many of these atom-based business although are in Phase 1 of their journey: Understanding demand and matching supply. This is the phase when the unicorns are understanding where the demand for their services is, what the supply constraints are, how they match demand and supply and what kind of supply is needed. All these need to be worked out to be able to create a base level of service that is reliable and trustworthy. Often this corresponds to the millennial category, to people who are more price conscious and people who are forgiving and accepting of early kinks.
As we get used to these experiences, our expectations build up. Additionally, as their brands get ubiquitous and we read about higher valuations — we start to expect a customer service experience commensurate with the brand strength.
This is the point of maximum vulnerability.
You have to make the transition from the underdog to the leader, from challenger to thought leader, else you end up at odds with your stakeholders. This is where tremendous amount of operational rigor needs to kick in. In the early years at Google we always said that the product and brand outstripped our operational capabilities, and we had to work hard to scale fast. This phase of the journey required us to redefine our services, understand our customers and partners better and increase the level of the consumer experience. Usually this need to be coupled with creating mutual respect with our partners, creating trusted supply partners and increasing the focus on a better quality of service.
I think this is where Uber and Airbnb are at this very moment.
As the service and business progress, and demand is fully understood — one begins to create captive supply both from a competitive and customer experience perspective. Ultimately this is what allows for the best margins.
Some of the early and obvious marketplaces were travel and entertainment, since the backbone systems and data existed for the travel industry and the existing players transitioned and were able to keep their middleman structure. Not so in the entertainment space, technology in the way of bandwidth and normalization of codec’s devices took a little bit longer. This is what allowed Netflix, Amazon, iTunes and Google Play to leverage their strengths into building a distribution network. The race is on, and we have barely started — but the new platforms have broken through, there will be a lot of carnage in this space in years to come.
Some of the newer areas are the tougher ones, where serious business re-engineering is required. In taxi, hospitality, on-demand services, you end up having to co-opt the existing industry and infrastructure — and you cannot control the end to end customer experience. I think in the future the ease of execution is going to be as follows:
- Entertainment
- E-Commerce
- Travel
- Logistics and transportation
- Cloud transformations SaaS models
- Fintech (but the players might end up being the existing players by acquiring Unicorns)
- Education
- Health
The message to the entrepreneurs and unicorns can only be: Focus on innovation, scale, and values.
- Maintain a high moral compass — respect all stakeholders, and respect innovation — the company takes on the form of its leader.
- Focus on product, and innovation — that’s the opportunity and that’s the risk.
- Execution and scale are as important as innovation. It takes the same amount of time to do both.
Next post, when I can motivate myself — “WHERE’s THE MONEY?”