As we had already discussed in a previous entry, during the early months of 2020 and due to COVID-19, “there has been a deep change in social and business matters, as well as in the way of life and how we relate to each other. Perhaps these changes will not be fully understood until enough time has passed; thus, allowing us to get a better perspective. “ Evidently, these changes also affect entrepreneurship and startups.
Until now, it seemed that the startup investor’s ideal was to hit the next “unicorn.” That is, a company with a value over $1 billion before or without going public. This business model, traditionally associated with Silicon Valley, refers to companies with a strong technological base with an innovative, convincing business proposal, which is especially captivating, focused directly on the consumer (B2C), and with accelerated growth rates.
A negative aspect unicorn companies present, and shall be remarked, is the fact they are not necessarily profitable, as in many cases years of heave losses can be accumulated. Also, their growth is fundamentally based on continuous financing rounds. Some examples of unicorn companies are AIRBNB, UBER, SPACE X, or the Spanish CABIFY or GLOVO. Nonetheless, in the last weeks, news about troubles that some of these companies are experiencing became public. Investors have begun to question whether their business models could become profitable and scalable in a sustainable way, both in a medium and long term.
Some time ago, in Fellow Funders, we mentioned there were other business models besides these great unicorns within the startup and SMMEs ecosystem such as “cockroaches,” or “gazelles.“ There is a whole universe which we named “The Entrepreneurship Zoo.”
A new animal enters the zoo
When all the possible members of this world of innovation were believed to be known, the current pandemic has brought as consequence the determination of entrepreneurs for another company model: the “camel” company. This concept was coined by Alex Lazarow, Investment Director with Cathay Innovation, in his book Out-Innovate.
Camels are highly resistant, robust animals that can survive prolonged droughts and drink over 100 liters of water when this is available. So, what exactly camel companies are? Probably the most remarkable aspect of a camel company is the capacity of maintain its activity independently of access to financing. Therefore, it can resist drought periods with its own revenue when there is low financing.
The following are some of the features shown by a detailed analysis on camel companies:
- Reduced costs. Besides having fixed reduced costs, increases in variable costs, such as operational or staff related costs, must be justified by an increased revenue.
- Organic growth strategy. Growth is important, but it must sustainable and followed by profitability of operations.
- Added value identification to accordingly charge clients. A camel company’s objective is to monetize since the beginning. Clients should be able to clearly understand the added value the acquired goods or services provide.
- Be ready for change. An uncertain environment where threats cannot always be identified is common for this type of business. Therefore, the design and development of contingency plans to quickly react are vital.
- Business model diversification. It is essential to diversify value propositions and to adapt the offered products and services to the changing needs of the market.
- Limited financing. Any financing obtained is used for the company’s growth, not for its survival. This allows camel companies to assess their sources of financing according to their needs; because of this, companies are even able to choose the investors they prefer.
- Long-term vision. The pillars of camel companies are adaptability and a survival mindset, as they understand the maturation periods of their business models are long, as well as the fact external influences, such as a crisis period, can be negative.
In conclusion, it seems like the current crisis originated by COVID-19 has reached the economic sector. Startups and companies should make a more efficient use of their capital, have a better monetization process by creating added but tangible value, and focus more on flexibility and long-term objectives.
Contrary to the spectacular unicorns, camels might seem humble animals, but their adaptability and survival spirit can generate important yields for their investors.
So, what do you prefer, unicorns or camels?
Do you want to join the Fellow Funders universe? We are waiting for you!