Nowadays, any entrepreneur’s dream is to be a unicorn. One of those companies which, simply due to the creature’s name, are worth more than a billion dollars.
But there’s a problem. You see, unicorns are not as fast as bears, or as loyal as dogs, or as agile as falcons, or even as resistant as bulls – the other names investors are particularly found of when categorising businesses. Unicors, well, they’re not even real. A mythical creature which has never existed.
If that’s the case, how could someone deem them the most valuable thing in the world?
There’s less than a month left in the countdown for Uber, that one unicorn which takes us from place to place with no more than a screen tap, to float on the stock market, and the financial world is getting worried. Unlike facebook or Amazon (the record setters for stock market flotations within the tech world) which are monopolists of their respective businesses, Uber is just one more transportation app. Lyft, Ride, Kaptan and many more fight for the same market.
Are these arguments enough to sway investors into the belief that the Uber is worth between 100 and 120 billion? And its CEO, Dara Khosrowshahi, worthy of a 100 million bonus? That’s the question.
The competition is so bad, that the operation costs, which are mainly marketing, are so grand the business loses money with every hour.
Naturally, the customer is the winner in all this. With cheap trips and many offers each time they go back, but on the medium term this will be no more. Be it because of the transparency required in the origin of the money involved in the transactions, the introduction of new taxes or the creation of regulatory barriers, some of these companies, or even all of them, will have to close down.
Silicon Valley’s growth strategy, the one called ‘blitzscaling’, won’t work anymore. Increasing revenue on the basis of financial loss, with the sole purpose of gaining more customers, only works if those same customers are loyal; and in Uber’s case, unlike Facebook and Amazon, they are not. They’ll catch a lift with whoever offers more.
The number don’t lie. Just before it’s IPO, Uber has reported a loss of 6.8 billion dollars between 2014 and 2018, a larger loss than the e-tailer Amazon during it’s beginnings. This is despite its 300% growth in revenue over the last two years and about 91 million users worldwide.
But are these arguments enough to sway investors into the belief that the company is worth between 80 and 90 billion? And its CEO, Dara Khosrowshahi, worthy of a 100 million bonus? That’s the question.
This week’s ‘The Economist’ cover portrayed de wished upon unicorns not so much as magical creatures, but as cute ponies with a paper horn strapped to their heads.
The risk these companies bring to the world economy is so big that, if no one comes up with the next animal, it won’t be the unicorn turning into a pony, but the people turning into donkeys.
José Manuel Diogo
CEO & Founder @ Informacion Capital
English version – Diogo Seabra Diogo