What Successful Unicorns Get Right that the Unsuccessful Ones Don't With investors' patience growing thin as days go by, this unicorn club is vertically split, albeit unevenly, into two categories – those making profits and those incurring losses
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India has the 3rd largest unicorns globally, after the USA and China. These 100+ unicorns, with a combined valuation exceeding $350 billion, are always in the news. However, the not-so-talked-about side of this story is that only a quarter of these unicorns report profits. With investors' patience growing thin as days go by, this unicorn club is vertically split, albeit unevenly, into two categories – those making profits and those incurring losses.
Early investors in unicorns may wish to consider divesting their holdings to secure their gains. This can be achieved through strategic sales or IPO. Private market activity is currently less pronounced, leading to increased focus on public markets. However, public listingdoes not guarantee continued success, as investors favour companies that demonstrate profitability. In the startup space, companies need venture funding and face losses in the initial years in order to grow. However, profitable startups challenge this assumption and proves that a focused approach works. Venture capital is not always needed, even a bootstrapped startup can become a unicorn and generate sustained profits.
CRED, a leading unicorn valued at $6.5 billion, has invested more than 2000 crores solely on marketing activities, generating a lot of buzz for itself. During the same period, the company's cumulative losses have exceeded 3000 crores. On the other hand, Zerodha, a leader in discount brokerage has achieved profits and high customer acquisition numbers each year without spending much on advertising. Although Zerodha eliminated the marketing function from its value chain, it serves as an extreme example that customer acquisition costs must match the firm's market size and revenue capacity. Excessive capital spending raised from venture capital firms to create brand awareness or promote a product can lead to losses.
Successful unicorns have a clear understanding of the market segment they target. For instance, Zerodha focused on the discount brokerage segment, catering to those who wanted to trade but needed a simplified process. Dream11 is a fantasy sports platform, while Razorpay provides payment gateway services. The clear definition of the boundaries of operation and a value proposition has led to their success.
On the other hand, Ola, which started as a ride-hailing business, ventured into the EV arena and is fighting two battles simultaneously with losses on both fronts.
Diversifying revenue streams from complementary products and services is one way to mitigate risks. For example, Zerodha's foray into mutual fund offerings. Well within the defined boundaries, Zerodha took years to refine its core segment and only then did it start offering something new.
Firms without a differentiator cannot outcompete rivals. No matter how good their value proposition is, it's a scenario of competitive parity and not a competitive advantage if it is the same as rivals. It is difficult to generate profits as consumers do not perceive the distinctiveness to choose the firm's offering each time the product or service is used. Successful unicorns have created uniqueness that is not offered by rivals. Payment gateway is an arena where differentiation is difficult to create, for it is a B2B business. Still, Razorpay's success has been its unique offering to its clients and Zerodha's simple-to-use platform has been instrumental.
