By Chris Zook & James Allen
Rapidly growing companies—especially unicorns like Uber—face a high risk of stumbling.
The term “unicorn” was coined to describe a rarity: In 2011 there were just 28 early-stage companies, still privately owned, with investment valuations of $1 billion or more. Today there are more than 200 unicorns, with a total value estimated by CB Insights at almost $700 billion. Uber is one of them: Its valuation rose to a record-setting $68 billion just seven years after its founding, despite reporting losses of more than $700 million in the first quarter of this year.
But when we tracked those 28 unicorns from 2011 to the present, we found that 33 percent failed to grow at all and another 2 percent grew less than expected. Nearly two in three died or stumbled. Unicorns are much more prone to self-induced internal breakdowns than to adverse events in the marketplace.
One of the hardest tricks for any business to pull off is to scale up rapidly and profitably. Our research warns of four growth barriers that all too often trip up these companies during their pursuit of scale.
1. The unscalable founder. The founder’s mentality is a strategic asset, but many individual founders simply aren’t scalable. They can become barriers to growth if they can’t let go of details, fail to build a cohesive team or allow hubris to get in their way.
2. Revenue growing faster than talent. The company grows so quickly that it has trouble attracting the quality and amount of talent that it needs.
3. An absence of accountability. Growth creates complexity that can become a silent killer of growth. As the company grows and the rules become unclear, accountability can be lacking. At its worst, this can breed a toxic culture.
4. Distance from the front line. The growing company becomes preoccupied with internal matters, numbing it to customer feedback that can improve the business model or to the concerns of front-line employees.
Chris Zook is a partner in Bain & Co.’s Boston office. James Allen is a partner in Bain’s London office.