Growth is always good, right? Not necessarily, according to a small but growing cohort of contrarian entrepreneurs. They’re taking a critical look at the unicorn growth model favored by companies like SpaceX and LimeBike and concluding that it creates as many problems as opportunities.
To understand why, we need only look at some of the companies that pioneered the “move fast and break things” model. In pursuit of immediate global dominance, they sucked up as much investment as possible and used it to multiply in size. Due in part to the speed and scale of that growth, Facebook became cavalier about data security, Uber flaunted local taxi laws, and Airbnb decimated rental markets.
These companies have made a lot of money, sure, but they’ve alienated countless consumers along the way. Worse, their rapid rise to power helped to obscure problematic issues within their own business models. For instance, where would Uber be if municipalities suddenly put tougher sanctions on drivers?
We call them unicorns for a reason — because they’re the rare examples of companies that turned piles of venture capital investment into quick success stories. In contrast, the vast majority of companies that pursued this same strategy grew fast and then failed just as quickly. Bolstered by mountains of venture capital (and the growth targets mandated by those investors), many promising startups made getting bigger their one and only priority. As a result, their business plans were neglected and buckled under the weight of growth.
In order to avoid becoming yet another boom-and-bust startup, entrepreneurs need to draw a distinction between rapid growth and responsible growth. That doesn’t mean avoiding bold initiatives and ambitious long-term growth strategies. Rather, it means growing in a way that’s sustainable, using investments that support the founder’s vision. A small group of startups — colloquially known as “zebras” — has adopted this approach, but it’s one that all new companies should consider. Follow these strategies to take a more enlightened approach to growth:
- Settle outside of Silicon Valley.
Silicon Valley is the world’s startup incubator, but it can also be a stifling environment — especially for entrepreneurs eager to follow their own path. Fortunately, many cities outside of the Bay Area have actively courted startups and tech companies, making them viable locations to set up offices. Major U.S. cities like Atlanta and smaller ones like Savannah now offer the talent, infrastructure, resources, and incentives that startups need to thrive. These developments aren’t limited to the U.S., either. In the U.K., cities like Liverpool, Brighton, and Bradford have all become hotbeds for startups.
In many ways, these locales don’t just offer an alternative to Silicon Valley, they offer an improvement. The cost of living is lower, the competition for investment is less intense, and the startup community is less cloistered inside the tech bubble that exists in the Valley. In that respect, startups have a lot to gain from locating elsewhere. Indeed, they liberate themselves to follow their own lead.
- Beat back dreams of blitzscaling.
Blitzscaling is the idea that your company should grow lightning fast in order to outpace the competition and suck as many people as possible into your own ecosystem. It’s based on the simplistic premise that whoever reaches the top first will stay there indefinitely. Adam Winters, CEO of Merchant Financial Group, a finance company that backs small and medium-sized consumer businesses, identifies the problem with this approach: “The companies that have a war chest of money are … willing to blow that money for top-line growth. It doesn’t mean they have a sustainable business model.”
As an alternative to blitzscaling, consider the funding strategy of a company like Baboon, which sells urban travel accessories. It intentionally sought out investors who were looking for long-term partnerships rather than short-term gains. By being selective about investors, Baboon has been able to preserve its autonomy and grow at its own pace.
- Give your time to your best clients.
The rapid growth philosophy tells you to work with as many clients as possible rather than cultivating strong relationships with your best ones. This is a recipe for quick cash, but it’s also self-sabotaging because it means that client relationships are shallow and likely temporary.
A better approach is to adopt the 80/20 rule. Because 80% of your business will likely come from 20% of your customers, you should make them your top priority. “Bet big on your heavy hitters, and create a scenario where you become indispensable,” advises Drew Kossoff, CEO of digital media buying agency Rainmaker Ad Ventures. “When you treat your top clients like VIPs and over-deliver, they’ll not only become more loyal, but they’re far more likely to reward you with bigger opportunities.”
Rapid growth is about betting on your unproven potential, whereas responsible growth is about building on your established success. Put this way, it’s pretty clear why generations of business leaders have chosen to grow responsibly rather than rapidly. Don’t let the unicorn fantasy obscure the obvious: The best way to grow is always on your own terms, stripes and all.
Written by Rhett Power.
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