Unicorns are privately held companies valued at $1 billion or more. Here’s the secret to Unicorn innovation.
I had the chance to connect with a longtime friend and colleague, Matt May. He’s the author of numerous books and an expert on how lean principles can be used to drive innovation.
His latest book, What a Unicorn Knows, is available on Amazon and reveals the secrets to building high growth startups. I encourage you to get it and embrace these strategies, whether you’re running a startup or in a big company.
Here’s a Q&A with Matt that highlights the key points in the book.
1. Most people recognize a unicorn as the magical horned horse popularized in European folklore, fabled to be rare but real, and never seen. What does it mean in a business context?
The term was first used in a modern business context ten years ago, when venture capitalist Aileen Lee coined it to denote U.S.–based software companies started since 2003 and valued at over $1 billion by public or private market investors. She recognized the fact that many entrepreneurs, and the venture investors who back them, seek to build billion-dollar companies. Back then, unicorns by this definition were indeed as rare and magical as their mythical namesake. There were less than 40 in existence, yielding an average of only four per year and representing less than 1 percent of startups. It’s a much different situation today.
2. You use the term “ScaleUp” …how is that different than startup and why does it deserve a special designation?
We call rapidly growing startups that have found what is commonly referred to as “product/market fit” and a viable business model a ScaleUp, because they now find themselves facing an inflection point that signals an even more daunting stage of maturity. A ScaleUp is still an adolescent company, but one generally characterized by rapid annual growth of over 20 percent for at least three years.
ScaleUps, and those that invest in them, face the next-level challenge of growing revenue at scale; that is, exponentially relative to expenditures in capital, people, and technology. Where startups search for product/market fit and consistency in customer retention, ScaleUps search for scalable product/ market fit, or go-to-market fit.
Jeff Horing, cofounder and managing director of private equity and venture capital firm Insight Partners, believes that the task of scaling up a rapidly growing technology company is so difficult and complex that it may require two CEOs.
3. You make an analogy between ScaleUps and a Formula 1 racecar. Why?
We like to think of a company in the throes of scaling up as a vehicle for rapid yet sustainable growth whose movement is like that of a Formula 1 race car for several reasons: both have amazingly advanced technology, both need speed, acceleration, aerodynamic efficiency, and maneuverability to succeed. Competition aside, both face opposing physical forces that must be overcome to win. These naturally occurring forces have business corollaries that can determine whether a company realizes its long-term potential.
Four primary forces work against any object in motion, including a rapidly growing company: drag, inertia, friction, and waste.
4. Can you briefly explain each of those, and why they matter?
Drag is the resistance of air against a moving object. Drag in the business context often manifests itself at the strategic level and can be experienced by such adverse indicators as sluggish market moves, inability to change direction with agility, and companywide misalignment of strategies and objectives.
Inertia is the resistance to any change in the current state of motion. The now common metaphor of a flywheel is often used to illustrate the power of inertia in business. Inertia gets the blame for waning product performance and competitiveness, feature fatigue, and poor innovation pipeline throughput. But it is also inertia that can keep the flywheel of growth spinning.
Friction occurs when moving parts rub against each other. It’s a common cause of slow adoption speed, poor customer experience, retention/renewal difficulty (aka “churn”), and undelivered customer outcomes. Of course, not all friction is bad. Without the friction between the tires and the tarmac, a Formula 1 race car would be uncontrollable.
Waste is performing work that not only adds no value, but detracts from it. It is perhaps the most prevalent impediment to value, not because the work being performed is inefficient, but rather because it is ineffective, defined as doing the wrong work.
The effects of these forces are anything but metaphorical. Those who have ever struggled to understand their company strategy, been frustrated by their inability to implement new ideas, scratched their heads wondering why things are done the way they are, or had a bad experience as a customer, has felt the impact of these forces. They are real. They are the archenemies of efficient scale and sustainable growth. But they are manageable.
5. Your subtitle refers to “lean” principles; I’m assuming they respond to these restraining forces?
Correct. For the unindoctrinated, “lean” is the term coined in a 1988 MIT Sloan Management Review article by John Krafcik, who recently retired as CEO of Google’s Waymo division. As the first manufacturing engineer hired in the early 1980s at the joint Toyota-General Motors assembly plant in northern California, it was his way of succinctly describing what he experienced and believed to be the essence of the game-changing Toyota Production System: near-zero slack.
While lean methods are the benchmark in manufacturing settings and have been applied with a modicum of success to entrepreneurial startups, broad application of lean methods specifically to software ScaleUps remains limited. We aim to change that, as we have discovered that applying a broader interpretation of lean—one of balanced optimization—can be a powerful way to battle the momentum-stealing effects of drag, inertia, friction, and waste.
There are five core operating principles that we collectively call the Unicorn Model™, and we’ve arranged them in an easy-to-remember mnemonic, S.C.A.L.E.:
Esprit de Corps
6. Let’s go through each quickly, starting with Strategic Speed.
Strategic Speed is defined as the optimal speed for swift strategy deployment and decision-making. Fighter pilots, professional cyclists, and race car drivers know what geese flying in a V formation know: you can travel faster and farther with half the effort by “drafting” in the slipstreams created by those in front of you. The faster you go, the more energy you save. It’s a virtuous cycle. And the more people in alignment, the bigger the slipstream, so you can go even faster. You can apply the concept to your company’s strategies.
Constant Experimentation is the engine of continuous innovation, which goes without saying is a survival need and competitive must. Without innovation, inertia will govern speed. The goal is to make simple, fast, and frugal experimentation the operating norm before what we call “big-company syndrome” sets in. Toyota runs over one million experiments annually, the vast majority of which are tiny, nested tests conducted under local autonomy. Meaning, employees don’t need more than their immediate supervisor’s sanction to run a test.
Accelerated Value is all about enabling customers to achieve their desired business outcomes as quickly and as effortlessly as possible. Doing so promotes product adoption and positively impacts community spread and customer retention, renewal, and expansion. Ensuring that everyone in your company is aware of how to enable that value quickly, in a unified fashion, helps to accelerate your growth. In the business-to-business (B2B) software-as-a-service (SAAS) world, the measure of Time-to-Value is an all-important leading indicator.
Lean Process targets waste directly. Companies in the ScaleUp stage are often fraught with waste simply because growth has outpaced development of standardized operational processes needed to sustain the business. Our work with dozens of ScaleUps reveals that waste most often takes the form of performing work that no one, especially a customer, is asking for or needs. Lean processes encourage simplicity as the path to speed. It starts with clearly defined value, then systematically removing everything blocking the path to delivering it. It’s a relentless endeavor, a different way of thinking, and it requires a mind shift.
Esprit de Corps, the French term for “team spirit,” is more of a behavioral principle than an operating principle, and it relates to the nature of company culture, which can encompass all of the restraining forces. You can’t build run a Formula 1 car by yourself, nor a company, especially not a unicorn. It takes an experienced team and leaders to create the kind of environment that enables the first four operating principles to come to life. Required is a “grease and glue” model of leadership. Grease and glue leaders understand that establishing a people/culture fit is every bit as important as a product/market fit when it comes to scaling for growth.
7. Finally, what is the one thing you want people to take away from this book?
It’s important to realize that the unicorn journey is not about implementing any one principle; it’s about finding the right blend of them for your company that drives enduring growth. The challenge is not unlike that of a close-knit Formula 1 race team searching for the perfect balance among the elements of performance, innovation, and control.
Like any set of traits purporting to describe the differentiating attributes of star players—athletes, artists, unicorns—one does not need all five S.C.A.L.E. principles in equal measure, nor can having all of them guarantee ultimate success. But we believe that having some degree of each trait, tailored to your specific situation, can certainly help your odds. Just how to find the right mix is what a unicorn knows.
Soren Kaplan is the author of Experiential Intelligence. Get a free sample chapter here.
Soren is also a columnist for Inc. Magazine, founder of Praxie.com, and an affiliate at the Center for Effective Organizations at USC’s Marshall School of Business. Business Insider and the Thinkers50 have named him one of the world’s top management thought leaders and consultants.