Camels thrive when times are good, but can also survive without food or water for months in the world’s harshest climates.
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We have much to learn from leading entrepreneurs operating outside Silicon Valley, in emerging ecosystems and markets. There, they have long faced a shortage of capital, a lack of critical resources, and regular macroeconomic shocks. Their startups are more akin to camels than unicorns — they can adapt to multiple climates, thrive when times are good, but can also survive without food or water for months in the world’s harshest climates. To reckon with this new landscape where survival is by no means assured, the answers don’t lie In Silicon Valley, but with these global entrepreneurs.
Camel startups survive because they prepare for the worst, and even companies in more secure markets have a lot they can learn from Camels as they prepare for the unexpected.
A Camel startup doesn’t stray too far from sustainability, thereby raising money on its own terms.
As Monica Brand Engel, the co-founder of Quona Capital, a leading emerging market investment firm, once quipped, “breakeven is the new black.” This not only is a smart strategy in places with scarce venture capital, but also it can mean the difference between survival and failure in the event of a severe shock. Camel startups control costs and charge fair value for their products so that their growth is built on a fundamentally sound footing. These two elements keep Camel startups within a stone’s throw of sustainability and make for responsible growth. Because growth is controlled and the bottom of the cost curve is not nearly as deep for Camels as for growth-at-all-cost unicorns, they can elect when to raise capital. Some companies like Mailchimp and Basecamp chose not to take any venture capital at all. While this is not an argument against venture capital (full disclosure; I am a venture capitalist), Camel startups realize they can choose whether, from whom, and on what terms to raise venture capital. The smartest Camel startups raise capital with a particular growth strategy in mind and raise only the amount they need.
A Camel understands its levers for action in a crisis.
Camel startups anticipate various crisis scenarios, communicate their plan to investors, and take action when required. Look at Zoona, a mobile money company in Zambia. Keith Davies, a co-founder, invested in a detailed financial model that forecasts many economic drivers based on the vibrancy of Zoona’s financial service booths, as well as the resulting cash needs of the business under multiple scenarios. Looking back at an episode in 2016 when the currency crisis hit and the Zambian kwacha devalued more than 70%, as Davies explains it, “We were able to understand with confidence and show our investors and partners a range of potential outcomes, and how our business would fare in each.” When the currency crisis hit, Zoona acted fast. It assessed the impact of the massive devaluation on the business and then called investors and made a plan of action—including rightsizing the company, slowing investment, and modulating various costs. As a stopgap, the company received a small capital injection and actively tracked the evolving situation.
A Camel startup doesn’t put all its eggs in one basket.
In case one part of the business takes a severe hit, Camel startups have other strategic options they can turn to. Often, this means diversifying from a product, geography or client perspective. In Silicon Valley, startups operate like mosquitoes, having a singular focus. Camel startups often take a more financially sound strategy—reflective of the complexities of their ecosystems—by building diversification into their product mix. VisionSpring, a global social enterprise that offers eyeglasses to the poor, has three business lines: sales to wholesalers, sales through intermediaries, and direct sales (in partnership with local nonprofits for distribution). It is active in six markets. This effectively means that there are eighteen businesses, each at a different level of maturity and scale. The more mature ones support the others, and if one suffers, the others remain.
Related: Mark Cuban’s 12 Rules for Startups
Yet the portfolio approach can go too far. One of the reasons Silicon Valley advises against this strategy for startups is that building fast-growing companies is extremely difficult and requires a massive amount of effort and dedication. Building one startup is demanding enough, being spread too thin across multiple projects is a recipe for mediocrity in each. Therefore, the lesson should not be about building diversification for its own sake or in a haphazard manner. Rather, it is about building a portfolio strategically, and when necessary.
Naturally, there are no “secrets” in the business of creating successful startups, and chance plays a factor in everything. However, Camel startups plan for uncertainty and in doing so, increase the likelihood they will survive in the long term.
Published at Tue, 26 May 2020 19:00:00 +0000