Our unicorns are real

Apparently, unicorns just went extinct in Silicon Valley. That’s sad news for the small group of tech entrepreneurs who hope to cash in on the latest gold rush and build a company with a $1 billion-plus valuation.

According to CB Insights there are over 400 unicorns with a cumulative valuation over $1.3 trillion. Two stories describe the demise of the unicorn – the IPOs of Uber and WeWork. The latter’s epic collapse this fall is brilliantly detailed in Vanity Fair.

A few elements of WeWork’s story really stand out and perhaps help describe a bit of the magic and magical thinking surrounding the highest of high-growth startups. First, you have an incredibly dynamic founder who doesn’t believe that rules apply to them. Adam Neumann charmed everyone he came across, used company resources to fund an extravagant lifestyle, and believed that he was on par with world leaders.

Second, obscene amounts of venture capital were invested in WeWork with the expectation of insane growth. This money flowed from oversees sovereign wealth funds looking for huge returns in the hottest corner of the investment world. The lead investor, SoftBank, told Neumann (as they pumped $4.4 billion into the company) that he needed to “think bigger.”

And finally, there was no expectation of profitability during the growth stage. The investors expected an exit (IPO in this case, acquisition in many others) in advance of profitability. Last year, WeWork’s revenue was $1.8 billion, but it lost $1.9 billion. In the end, WeWork’s IPO was scrapped, its valuation plummeted, Neumann was forced out (with a fat check), and investors and employees were left with very little.

Ignoring profitability seems like cheating. As design thinkers, we apply the Three Lenses of Innovation: Feasibility, Viability, and Desirability to our client’s projects. Whether we are helping clients create a business model, a physical or digital product, or a service, we ask each other whether this “thing” is feasible. Can it be made or made to work? Is it desirable – do people want it? And is it viable – can you make money doing it?

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