silicon valley should reward zebras, not unicorns

Editor’s note: In a comprehensive essay published in 2017, Jennifer Brandel, Mara Zepeda, Astrid Scholz, and Aniyia Williams established the term ‘zebra’ to characterize a comprehensive movement centered on startups that develop businesses addressing challenges with a social impact focus while simultaneously generating income. This discussion regarding zebra companies was initially presented without acknowledging the term’s origin and the contributions of Zebras Unite, as well as the significant influence zebra companies can exert on society. TechCrunch has documented Zebras Unite and the impact of the zebra movement on startups, here, here and here. We apologize for this oversight. The article has been revised to include this information.

Silicon Valley currently exhibits an overemphasis on unicorn companies.

While no one suggests that highly valued startups should cease to exist, their number should ideally be reduced. This is a conclusion reached by many emerging founders after observing the difficulties and failures of private companies valued at over a billion dollars.

A unicorn represents a fantastical creature, leading investors to anticipate extraordinary outcomes: rapid expansion, near-monopoly status, and an initial public offering (IPO) resulting in returns of 100x or 1,000x. A “zebra” company, a concept originally defined by Zebras Unite, differs significantly. Zebras are genuine animals that have adapted to thrive within a specific environment. Unlike unicorn companies, zebras are characterized by their efficiency, resilience, and steady performance.

Frequently, a company’s reputation or perceived prestige—rather than its actual product or viable business model—becomes its primary offering. A recent and particularly striking illustration of this trend is the case of WeWork.

The company’s unsuccessful 2019 IPO was a major corporate failure of the decade; few businesses since Enron have experienced such a rapid and substantial decline. Upon closer examination, the market discovered that the “unicorn” was essentially a limited operation with an artificial image. Adam Neumann prioritized personal wealth over genuine value, and his workforce and backers bore the consequences. However, consider the potential outcome had the IPO succeeded: how much of the company’s value would have been lost when the COVID-19 pandemic began in March?

Although most technological advancements require venture capital in the current economic climate, unicorns can serve as examples of the potential drawbacks of excessive funding. Repeated rounds of investment, as seen with WeWork, can conceal fundamental weaknesses and flawed business strategies.

Earlier this month, the mobile video startup Quibi ceased operations less than a year after its launch. Critics of film and television were not surprised, nor were the limited number of consumers who were aware of the company.

Even before its unfortunate launch in early April, most analysts recognized its inherent flaws. So why did Quibi attract so much investment? The prominent figures associated with the company, including Dreamworks co-founder Jeffrey Katzenberg and former HP CEO Meg Whitman, drew investors who seemingly failed to recognize the fundamental issues with the product, ranging from its name to its pricing structure.

In my view, what a unicorn provides is less significant than its status as a unicorn. Conversely, a zebra company represents the antithesis of this approach. They may be unconventional, and they may not receive extensive media attention, but they are designed for longevity and purpose.

Unicorns flourish as long as they remain within the realm of continuous venture funding; zebras persevere in the competitive landscape of the open market. A zebra company may not evolve into a massive entity like Facebook or Amazon, but it also won’t suffer the fate of Quibi or WeWork.

The rise of zebra companies such as BaseCamp (which also showcases other companies that may qualify as zebras in its “Bootstrapped, Profitable, & Proud” series), Buffer (which notably repurchased its venture capital investors in 2018), and patient-owned co-operative Savvy Coop reflects a broader shift in our understanding of business and economics. Even prior to the coronavirus pandemic, the pursuit of limitless growth was becoming increasingly unappealing.

Rather than continually extracting value from the economy, companies like Patreon demonstrate that the same funds can generate multiple returns as they circulate within the economic system. The one-way extraction of value is replaced by a circular flow of value. Exponential growth is not necessarily the optimal or sole path for businesses to follow.

For many, the new year will bring a sense of relief: 2020 is finally over. However, we should not overlook the opportunity to learn from the past and prepare for the future. The errors of WeWork and Quibi are easily replicated; it is likely that a venture capitalist somewhere in Silicon Valley is currently overinvesting in a failing enterprise. We have placed too much emphasis on unicorns. It is time to recognize the value of zebras.