Once upon a time, startups were simply known as just that – a startup. Some people would have also spoken of new companies or classified startups by the industry they were in. Think fintech for those focused on finance, proptech for companies bringing tech solutions to real estate, or edtech for any company offering some type of online learning.
Simple as it may sound, that classification did little to describe how successful startups were. Enter the zoology of startups. For the past decade, talking about unicorns, pigs, bears, and others has made it easier for outsiders to understand the performance and the focus of a company. If you’re still confused by these appellations, this blog post is for you. Read on to find out more about the zoology of startups and what it tells you about those companies.
Why Startups Became Known as Animals
Just a little over a decade ago, in 2013, angel investor Aileen Lee wrote an article titled ‘Welcome to the Unicorn Club: Learning from Billion-Dollar Startups.’ Lee had agonized over the title, unsure how to best characterise the small minority of startups that were valued higher than their competitors.
She’d considered the term ’home run’, but it didn’t seem quite right. Unicorn did the trick, as Lee explained to Inc. magazine. Mythical as it may be, the animal made it clear that Lee was talking about something incredibly rare but also close to perfect. Unicorn startups were born.
What it Means to Be a Unicorn
Unicorn startups are those valued at $1 billion or above. Typically, these are the businesses that make their founders famous and disrupt an industry with a product or service that’s being adopted rapidly by an equally fast-growing customer base.
Going back to the intersection of the mythical and the zoological side of things, unicorns – by definition – are supposed to be truly rare and almost impossible to find. Since Aileen Lee’s article, unicorns have become somewhat more common. By 2021, industry insiders estimated that four more unicorns were being created every year.
Would You Rather Be a Zebra?
Staying with the zoology metaphor, unicorns have hooves that may trample on and break things from time to time. Zebras may have hooves, too, but as the startup legend of these types of companies has it, ‘Zebras fix what unicorns break.’ Yes, that is the title of another influential article, published four years after Lee’s in 2017.
At that time, unicorn startups had come under fire for questionable ethics. One examples was Facebook which lacked the controls to limit the spread of fake news. Ride-hailing service Uber was being criticised for having a toxic work culture. How are zebras different? For a start, they weren’t defined by a certain valuation.
One thing zebra startups have in common with unicorns is that they tend to prioritise profits over growth. What’s more important, though, is where they differ. Zebras have a dual purpose, trying to balance benefits to a wider society with shareholder returns. Sustainability startups are an excellent example of zebra companies.
Could Your Startup Be a Dog?
Now, this is where things get a little tougher, and you need to ask yourself a few hard questions. Looking at your startup from the outside, are you seeing a tendency toward underperforming or fundamental problems with your team? Perhaps there is something just a little off about your investor structure?
Put simply, if your startup can’t attract investment no matter how hard you seem to be trying, it could be a dog. A dog is a startup that raise red flags to investors and fails to inspire confidence. It’s not a case of changing your pitch. You can paint the dog in white and black stripes but that doesn’t magically turn it into a zebra. As long as it barks, it’s still a dog!
Why Not Aim to Be a Bear?
Here’s another scenario: what if you could build a long-term startup without relying on venture capital? That’s what so-called bear startups do. They’re called bear companies because bears tend to spend their life in solitude, valuing their independence above all else.
Building a company this way is harder and will most likely take longer than bringing in capital from investors. Why would anyone choose the hard route? For many founders, staying in control of their business is just as important as making money. Building a bear startup allows them to do that.
Or How About a Zombie?
Not strictly speaking an animal, but let’s take a look at zombie startups. Should you be scared? Perhaps a little, if the following lines describe your company. If you’ve watched even one zombie movie in your life, think about what made a zombie a zombie: one of the most characteristic things is their walk. Actually, it’s more of a stumble. Zombies are dragging themselves along, not quite dead but not alive either.
In startup terms, that description fits a business that has stopped growing but hasn’t quite gone out of business yet. If that sounds like you, you may be benefitting from the odd grant or similar source of finance to tide you over until the next hit. Some zombie businesses can look back at truly successful histories. They were growth magnets once, but right now, they may be nothing other than a lifestyle business for their owners without much potential for growth and sometimes even without as much as a decent product to sell.
If that sounds like a startup you know, you need to be brave and nail a stake through the heart of the company to put everyone out of their misery!
What Does it All Mean?
We could go on – gazelles, scarabs, cockroaches, camels and donkeys all feature in this zoo of definitions for startup success.
However, even successful startups make mistakes and are held publicly accountable for them. Unicorns have come in for a bit of criticism lately. Their profit-focused strategy may not be the best to support the long-term stability a business needs to thrive.
The article we mentioned above, comparing zebras and unicorns, favours zebras because they aim to create sustainable and profitable companies that are great places to work and become renowned for outstanding customer service. The difference lies in their business culture.
And this is a choice that all founders have: whose venture capital do you accept? Do your goals align with those of your investors? There is often at least some room for negotiation that can help achieve the goals of all involved.
Limit Your Exposure
As startup funding is becoming harder to secure, another approach is to limit your company’s dependency on it. This is easier said than done, but it should be on your radar as a founder to consider.
Limiting their dependency on an influx of capital is something that camel startups manage well. Like the desert-dwelling animal manages to survive without water for long periods, camel startups are built in a way that allows them to survive so-called ‘cash droughts.’ They grow slowly, ensuring survival before extreme growth or extreme profits.
And how can startups become camels? Here, we are back to one of my favourite topics – understanding your financial situation. Before you raise venture capital or look for the most suitable investor, have a really clear idea of how much you need and what this can help you achieve. Otherwise, your startup may be destined to be nothing other than a flash-in-a-pan.