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Key points
- The media and literature tend to focus on high-flying and wildly successful business ventures.
- The reality is that many ventures fail and entrepreneurship is much more mundane and nuanced.
- One important area of study could be the evolution of a startup, from pre-organization to organization.
When we think of any person, it’s sometimes easy to engage in zoomorphism and assign them animal traits. As humans, we cling to characteristics signifying a menagerie of other species. Similarly, businesses are described as animals.
“In the entrepreneurial world, ventures are often metaphorically grouped based on their distinct behavioral patterns and characteristics. In today’s media and venture capital discussions, ventures are increasingly metaphorically categorized based on their distinct behavioral patterns and characteristics,” write authors in the Journal of Small Business and Enterprise Development.
In reality, high-capitalization firms like unicorns represent a rarefied level of success that belies the reality of entrepreneurship, startups, and business ownership worldwide. Nevertheless, the mythic beasts of the business world dominate headlines in business media and capture the attention of researchers.
Business beasts explained
Unicorns. These represent privately held, high-tech ventures that are valued at more than $1 billion USD. (Decacorns are valued at more than $10 billion USD.) As of September 2023, there were 1266 active unicorns, with most located in the United States and China. Founding teams of unicorns exhibit similar traits, including well-educated solo founders with prior experience in high technology; high homogeneity among founders with respect to work and education backgrounds; and turnover in CEO leadership before a liquidity event.
Both network effects and cognitive biases tend to predispose unicorns to success, with such ventures acquiring goodwill, trust, financial resources, and psychological commitment from stakeholders early on.
Some recent examples of unicorns include Airbnb, Uber, and Palantir.
Gazelles. These ventures are fewer than 5 years old and grow their workforce by more than 20% per year. These startups usually offer single innovative products and are connected with the environment in which they exist, which influences their performance. Netflix, Amazon, and Etsy all started out ask gazelles.
Elephants. These are huge organizations that are globally recognized and entrenched in various markets. They are leaders in their industries and exhibit vast operational structures, rich corporate histories, and resource pools. Although their coffers are seemingly endless, they typically lack agility and are slow to make decisions. Their highly bureaucratic nature makes them risk averse, with a preference for safety and predictability.
Gorillas. These represent dominant market leaders, with imposing market presence and vast resources. They set industry standards, drive innovation, and have a high capacity for growth. They seek out collabs with smaller ventures and tap into localized innovations to bolster their competitive edge. These smaller ventures, however, are often relegated to low-margin subcontracting roles.
Dragons. These ventures reach a $12 billion USD or more valuation after accounting for venture funding. Whereas many unicorns and decacorns usually lack long-term value and have tenuous foundations, dragons are comprehensive, tenacious, and dominant in their markets. Dragons strategically build genuine defensive models and don’t spend their resources to acquire market share, as is the case with many unicorns or decacorns. Dragons achieve long-term rigor and sustainability. They also value profitability over scale, making them paragons of entrepreneurship.
Phoenix. These ventures wax and wane. They cycle assets from failing ventures to novel ones, thus assuring continuity among challenges. Insolvent businesses go defunct and liquidate, with a new entity rising from the old one.
Lame ducks. These businesses function on the edge of irrelevance due to outdated business models or other challenges. They face substantial financial challenges that keep them from operating effectively. They also exert diminished influence, inspire little stakeholder trust, and lack competitive prowess. Without robust restructuring or innovation, these ventures die.
Mice. As the name implies, mice are diminutive businesses of up to 20 employees that offer unique value propositions that derive from social missions and innovative products. They are attractive to larger corporations, which makes them vulnerable to acquisition. They create strong bonds with consumers based on values and social principles. Their organizational structures are inextricably intertwined with their missions. Because of their small size, these ventures can easily fall victim to unfavorable market conditions, such as a Black Swan event, another aptly named business phenomenon referring to unexpected downturns in the market.
The shortcomings of animal models
For many reasons, some entrepreneurship researchers take issue with unicorns, decacorns, and other high-flying ventures soaking up all the limelight. These issues are outlined in an oft-cited article published in the Academy of Management Perspectives.
First, such ventures tend to concentrate on Western countries. In the United States, 13% of adults are entrepreneurs vs. 5% in Italy, Germany, and France. Indeed, entrepreneurship is more prevalent in other countries that are less studied, such as Ecuador, where 32% of citizens are entrepreneurs, and Burkina Faso, where entrepreneurs account for 34% of the population.
Second, many entrepreneurial ventures fail, and the authors suggest that research should examine the turbulence “rather than being skewed by focusing on unicorns, gazelles, and other rare creatures, which also inhabit the most unusual ecosystems (i.e., high-tech agglomerations within advanced industrial countries).”
Third, the genesis of startups is poorly elucidated, and questions remain about the boundaries between pre-organization and organizations. Issues such as the intentionality of the venture, mobilization of resources, registration/naming of the entity, and resource exchange with outsiders are often overlooked.
“Emergence involves uneven development along several lines, any one of which might be stopped well short of an organization’s successful founding. Treating entrepreneurship as the creation of new organizations changes the focus of entrepreneurship research from studying outcomes to studying the initiation of organizing processes that could result in new social entities,” the authors explain.
Fourth, attention should be paid to how founders diverge from existing managers at organizations. Founders begin with a table rasa, with no prescribed path. Moreover, founders can’t be recruited or selected.
“We typically identify founders only after we have already identified their organizations. If we study entrepreneurs only after their organizations have attracted enough public notice to be included in standard sampling frames, we overlook a critical phase in the founding process. At that point, selection processes have winnowed out many interesting variations. We also miss the process by which new organizations with innovative routines and competencies set in motion the genesis of new populations,” the authors write.
In the aggregate, animal models of business concentrate on outcomes, with the media, researchers, educational institutions, and the public heralding successful outcomes. It’s more informative to researchers and the public alike to understand the origin and evolution of startups to enable the replication of success. It’s also important to expand our purview to include startups in other countries, where entrepreneurship is often highly dynamic and inspiring, although overlooked.
