Guest Articles

Thursday
June 4
2020

Alex Lazarow

Unicorns vs. Camels: Three Lessons for Building Resilient Businesses – Despite the COVID-19 Crisis

Editor’s note: This article is part of NextBillion’s series “Enterprise in the Time of Coronavirus,” which explores how the business and development sectors are responding to the pandemic. For news updates and analysis, virtual events, and links to useful resources related to the COVID-19 crisis, check out our coronavirus resource page.

 

As the COVID-19 crisis continues to transform the global economy, businesses in both emerging and developed markets have had to adapt and even remake their business models to stay viable. This instability has affected companies both large and small. Indeed, in Silicon Valley, many of the tech-fueled investor darlings of the last decade are having a particularly difficult time with the current crisis – especially if those companies were not yet profitable.

As a result of these struggles, we’re beginning to see a shift back towards safety and longer-term thinking among both tech companies and other enterprises. This reflects a dynamic that was already gaining momentum among the best entrepreneurs outside Silicon Valley, from Grubhub to Quizlet, which are building sustainability and resilience into their business models and the fabric of their organizations from day one.

In describing these companies, I often refer to them as “camels”: In distinct contrast to the many tech-driven “unicorns” that focus on blitz-scaling and growth at all costs, “camels” – like their namesakes – are built to survive harsh climates and are prepared for difficult journeys. Many of them are working within emerging markets, often with a social impact mission. Taking the long view gives them time to evolve their business model, find a product that resonates with customers and develop an approach that can deliver at scale. Of course, their objective is still to grow, scale over the long term and prevail over the competition. But the race is not always about who gets to market first, but rather about who is able to outlast their opponents.

In light of the challenges of the pandemic, it’s worthwhile to take a look at how these camels are building long-term sustainability in difficult markets. Below are three lessons other businesses can learn from them, which can help them through the current crisis.

 

Focus on Sustainability and Resilience Instead of Growth at All Costs

One of the strategies that successful companies in emerging markets employ is diversification of their business. These companies often diversify their geographic focus and/or their product in order to reach different customers and market environments. Even though this approach requires more upfront investment, it helps them to manage the man-made and natural risks that can emerge in the long run, from currency shocks and new regulations, to competitors and other roadblocks.

These companies also balance their growth from the beginning. Instead of engaging in a subsidized “land grabbing” battle with competitors, camels focus on growing through sustainable unit economics. Revenues (and ideally profits), instead of venture capital alone, help build the company. When they do take on capital, it is for a specific growth strategy like an expansion into a new market or a product launch, and the company can later re-evaluate whether to seek more funding once those strategies are complete. These enterprises’ solid financials allow them to weather storms like the one we’re going through now. This doesn’t mean camels don’t focus on growth. They do, and they seek many of the same elements that make traditional startups extremely successful, like network effects and strong defensive moats. But they balance this with a focus on resilience from day one, and this inherent strength makes them attractive to investors looking for opportunities during economic crises, as a business with solid financials is seen as a safe play despite unfavorable short-term market conditions.

 

Build a Strong, Distributed Team

With nearly all white collar workers in the U.S. working remotely during the current situation, many companies are just starting to learn how to manage a remote workforce. Some companies have been remote from the start, and it is an approach with inherent appeal to camels.

There are many benefits to building a distributed team, and many companies – including Basecamp, InVision and Zapier in the U.S., and Zola, Fetchr and Globant in emerging markets – had been leveraging different models of remote work long before COVID-19 forced workers out of the traditional office. There are some clear benefits to adopting this approach in the longer term that can actually make a company both more competitive and more resilient.

First, having a distributed workforce alerts companies rapidly to emerging challenges — like a breakdown in communication or a lack of collaboration — and forces them to react and adapt quickly.

Second, it gives companies the ability to tap the best talent regardless of location. Some regions have particular centers of excellence, drawing workers with expertise in a specific area – like robotics engineers in Pittsburgh. Building teams in a distributed manner allows organizations to leverage these best-in-class ecosystems. Remote teams are also associated with increased racial and gender diversity, as they allow greater work flexibility, and decreased bias because work is judged by outputs.

Lastly, distributed teams can lower costs, because companies are not required to pay the incredibly high salaries that are necessary in markets like San Francisco, where the cost of living is so expensive. And companies that have a distributed structure also point to the time-saving benefits of zero commute time and a better work/life balance, which leads to happier and more productive employees. Running a company remotely can actually make it a lean, well-oiled machine – if care is taken to design hiring, collaboration and team-building around remote work.

To ensure that a remote team can work efficiently, companies must put the right checks in place, so that no team member is invisible or disengaged, simply “clocking in and out” without contributing meaningfully to the mission. They can do this through a combination of technology and collaborative company policies and work culture, like randomized team one-on-ones. If this is done effectively, team members often find themselves well-connected to other workers, particularly those outside of their direct work units. Plus, a distributed structure doesn’t necessarily mean disavowing in-person connectivity. On the contrary, distributed firms make an effort to structure in-person interaction. This includes regular retreats, weekly live videoconferences, and an integrated digital communication platform that emphasizes live interactions.

 

Embed Your Mission into Your Business Model

The business environment right now is not friendly, to say the least. And with some exceptions, many companies – even social enterprises – will tend to zero in on survival at the expense of their missions during COVID-19. However, some of the best companies are able to maintain their missions even through downturns and company upheaval – and the reason for this is that they made the effort to firmly establish their missions well before hard times hit. In fact, in most cases, these companies built, codified and solidified their missions within the first 12 months of their existence. It is during this critical period, after choosing a worthy problem to solve, that the direction of an organization is set.

The companies that hold strong to their missions are the ones that have woven them into the fabric of their business model. These enterprises often make their social impact directly through the products they offer – for example, by providing vital healthcare, financial inclusion or education services to their customers. As these companies grow, more and more customers benefit from their products and services, and both their business interests and missions advance together.

There’s one other thing that keeps the mission top of mind during financial or market stress: measurement. It is often said that what gets measured gets managed, and this is equally true of a company’s mission. Mission-driven businesses reflect on their desired impact and decide how to assess their success in achieving it – a process that could involve measuring customer safety, quality of life or other metrics. They then assiduously track, report and disseminate information about their progress toward this goal across the organization, and use it to optimize their various operations. By making this data so central to their business function, the mission stays front and center.

As the COVID-19 pandemic plays out across the world, it’s impossible to predict which businesses will fail, which will survive and which will thrive. But those that embrace the approaches discussed above are far more likely to not only weather the current crisis, but to establish a solid foundation that will make future adversity easier to manage. We may look back on this time as a turning point of sorts, in which the age of the unicorns gave way to the age of the camels, as the fixation on short-term growth was supplanted by a focus on long-term sustainability and impact. If so, both businesses and the communities they serve will be stronger and more adaptable, in good times and bad.

 

Alex Lazarow is a global venture capitalist and the author of Out-Innovate: How Global Entrepreneurs – from Delhi to Detroit – Are Rewriting the Rules of Silicon Valley.

 

Photo courtesy of hassan9.

 


 

 

Categories
Coronavirus, Entrepreneurship
Tags
business development, coronavirus, emerging markets, social business, social enterprise, social entrepreneurship, sustainable business, technology, venture capital