Zebra vs Unicorn businesses
What kind of company would our youth thrive in?
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I just got back from teaching at a college in Dehradun. I was struck by the chasm between ambition and good jobs.
This got me thinking.
What kind of company would our youth thrive in?
Zebras or Unicorns?
I share my thesis, and you tell me yours.
Let’s go.
The Zebra Effect
At first glance, the Zebra looks like a mistake made by an overenthusiastic intern with achromatopsia1while Mother Nature was napping.
A mistake that lives in the open savannas of green, yellow, and brown grass - the perfect background against which black and white stripes scream, “Hey you! Lion. Yes, you. Look at me!!”
But here’s where nature once again one-ups us. One zebra cannot outrun or outfight a lion. But together, many zebras create an optical illusion bouncing in all directions.
Imagine being a lion. One minute, you’re chasing lunch. The next minute, you’re dizzy from chasing a chaos of black-and-white.
This is known as the Zebra Effect - when we join hands with others to build something bigger than the sum of its parts.
On the other hand, there are Unicorns— most startup founders’ dreams.
The key difference is their end goal
The Unicorn’s end goal is a billion-dollar valuation powered by VC funding.
The Zebra’s end goal is to build a sustainable business. That’s why they prefer to bootstrap or crowdfund over VC funding.
This is how it works.
The Unicorn way
Valuation = X times ARR (Annualized Revenue Run Rate)
To boost their valuation to $1 Billion, Unicorns must grow their topline in a hockey-shaped curve—faster than the market allows and faster than trust can be earned. It’s like trying to fit an elephant into a Hermes purse.
We know that in general, people don’t fall in love with a product overnight and they sure don’t buy a year’s supply in a week. That’s why Unicorns offer deals. Discounts. Freebies. They pour money into ads and lose money on every sale.
This clip from Silicon Valley captures the Unicorn valuation mind game.
“if you show revenue, people will ask how much, and it will never be enough. The company that was the 100xer or the 1000xer becomes the 2x dog. But if you have no revenue, you can say you are pre-revenue.”
Silicon Valley
Losing money for growth works for short bursts provided it pays for itself by serving a larger goal, e.g., mass sampling a great product that consumers will try and buy.
But when I learn that 70% of IPO investors sell their stock within the first year, I ask myself. Were they ever building a business? Or cashing in on a promise they never intended to fulfil?2
A new study by markets regulator Securities and Exchange Board of India (SEBI) revealed that over half of the investors in IPOs between April 2021 and December 2023 sold their shares within a week of the listing. The study also found that within a year of listing, this figure increased to 70 percent by value.
The Zebra way
The Zebra business is both black and white - it wants to build profitable businesses for the long term while also solving meaningful problems for social good.
This chart summarizes both businesses well.
Not all Unicorns are mythical, but some are Zebras
We all know about the Byju’s fiasco. I share some more facts that prove that this ‘sell-at-any-cost’ strategy is real.
Only 31 out of the 100 unicorns that filed their FY22 financials were profitable3. The top two most profitable unicorns were Zerodha and Zoho - both bootstrapped.
For those interested in diving deeper, I recommend Professor Dhruv Nath’s book, Earnicorns. In the book, he studies Zerodha, Zoho Books, Dream 11 and Naukri.com, the only profitable unicorns of that time.
All four prioritised building great products to solve real unmet needs over chasing valuation.
All four made profitable revenues.
All four still achieved Unicorn valuation.
They are Zebra-Unicorns. Or as Prof. Nath calls them, Earnicorns.
Zoho is a quintessential Zebra-Unicorn. Talking about building over the long-term, it started in, hold your breath, 1996. It was and is bootstrapped because the founder, Sridhar, knew that if he took funding, he would be pressured to grow artificially.
Sridhar built Zoho ground-up out of rural Tamil Nadu, where he trains local talent in Zoho Schools. This is a 100% contrarian approach from the VC-funded playbook.
That’s why I say, Zebra or Unicorn is not an outcome. It’s a mindset - chasing valuations vs. chasing consumer impact.
Vs.
The era of chasing unicorns is ageing like Trump at the debate. More funding, more people, more products, more valuation… more more more — ‘more’ has stopped guaranteeing success. Hell, it doesn't even guarantee survival.
In the quest to chase Unicorns, let’s hope we don’t become Dinosaurs.
The era of real people building real businesses was, is, and will be the only way.
In the next newsletter, I progress this thesis and share why I think startups in India will prosper more with a Zebra mindset over the Unicorn one.
A condition when the only colours the eye can perceive are black and white.