In recent years, the term “unicorn” has become synonymous with startups that achieve a valuation of $1 billion or more.
These companies are often lauded as the epitome of success and innovation. However, when it comes to deep tech startups, there is a flip side to this story. While reaching unicorn status may seem like the ultimate achievement, it is not always as beneficial as it may appear. In this post, we will explore the darker aspects of becoming a unicorn in the deep tech sector.
Unrealistic Expectations and Pressure:
Once a deep tech startup attains unicorn status, the expectations and pressure to maintain growth and profitability skyrocket. Investors and stakeholders anticipate massive returns on their investments, which can lead to an intense focus on short-term gains rather than long-term sustainability. This pressure can hinder a company’s ability to take risks, explore new avenues of research, or invest in fundamental research and development, ultimately stifling innovation.
Talent Drain and Recruitment Challenges:
A “unicorn” often attracts attention from larger, established tech companies. These companies offer lucrative compensation packages and greater stability, making it difficult for the unicorn to retain top talent. Losing key employees can significantly impact a startup’s ability to maintain its competitive edge and deliver on its promises.
Market Oversaturation and Hype:
The deep tech sector is highly competitive, with numerous startups vying for attention and funding. As a unicorn, a deep tech company can inadvertently contribute to market oversaturation and hype. Investors may pour large sums of money into similar technologies, leading to an artificial bubble that can burst when expectations fail to materialize. The resulting market correction can have far-reaching consequences, affecting not only the unicorn but the entire deep tech ecosystem.
Ethical Dilemmas and Social Impact:
Deep tech startups often work on groundbreaking technologies that have far-reaching societal implications. When a company achieves unicorn status, the pressure to generate returns can overshadow ethical considerations and the potential societal impact of its technology. This can lead to compromises on privacy, security, or responsible development practices. The pursuit of profit at all costs can undermine the ethical foundations of a deep tech startup, eroding public trust and leading to regulatory scrutiny.
Distorted Innovation Focus:
Becoming a unicorn in the deep tech space can shift a company’s priorities away from genuine innovation towards maximizing valuations. Startups may feel compelled to chase growth metrics and follow popular trends rather than focusing on true technological breakthroughs. This can result in a dearth of fundamental research and development, limiting the long-term potential and transformative impact that deep tech companies can have on society.
Conclusion:
While becoming a unicorn in the deep tech sector may seem like a dream come true, it is crucial to recognize the potential drawbacks and challenges that come with this achievement. Unrealistic expectations, talent drain, market oversaturation, ethical dilemmas, and distorted innovation focus are just a few of the issues that can arise. Deep tech startups need to maintain a balance between growth and sustainability, prioritize long-term innovation over short-term gains, and never lose sight of their core values and societal impact.
One of the challenges that comes with design services is the cyclical nature of the services business. When the economy tightens and corporates are watching their operational expenses, the first step will be to halt any external contracts/contractors which are not deemed absolutely essential.
Whereas the earlier (staircase) model is a good approach in scaling up revenue and creating new revenue streams, the foundation of the company is still based on the service model: headcount continues to be the main driver (typically up to 60-70% of revenue). In terms of (enterprise) valuation the additional revenue streams, however, will already make a significant difference.
Design services companies typically start small (some exceptions when it concerns management buy-outs) and natural growth is a slow process as it requires hiring and training of engineers based on/driven by the revenue stream of the company. Growth of business is tied to growing the team and it is not always easy to find the engineers.