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Goodbye Unicorn, Hello Centaur

There have been times over the last few years when I’ve come close to doubting my sanity.

I’d go to a typical TAB meeting: ‘What do your KPIs look like this month?’ ‘There’s a problem with one of them? What are you doing to fix it?’ ‘And how are profits compared to last year?’

Then I’d go home and read the business news. Uber is the company that sticks in my mind, but there were plenty more. Regular readers will remember the story: Spring 2019 and Uber was preparing for a $100bn stock market listing.

A hundred billion dollars. A huge valuation that could only be based on a long track record of consistently growing profits.

Exactly the opposite. As Uber prepared for its flotation it had cheerfully racked up $3bn of losses in the previous 12 months and $8bn since it was founded. According to a report from Reuters at the time, the company admitted that its rapid growth was slowing, and that it “might never make a profit.”

Uber might never make a profit. I’d read the same story almost every day – and yet investors were clamouring to get on board, presumably in the belief that the company was mistaken. That ultimately market share and innovation had to equal profit.

WeWork was another example – forced to scrap a $9bn flotation after revealing that it was on course to record losses of $1.5bn.

I’d read the articles and scratch my head. The next day I’d be back in a TAB meeting where members were talking about making profits so they could invest in their businesses, provide security for their staff and – ultimately – realise their personal goals.

There were times I thought I’d slipped into a parallel universe.

But as was mooted at the time, maybe the WeWork ‘fiasco’ in December 2019 was the turning point for unicorns.

Perhaps we should break off here for a definition or two. What’s a unicorn? In investment terms, it’s a venture capital term (first popularised in California, where else?) for a start-up company with a value of $1bn – roughly £790m at today’s exchange rate.

But if unicorns have reached a turning point, what’s going to replace them? Step forward the centaur: not the half-man, half-horse of Greek mythology but, in investment terms, a company that reaches $100m of annual recurring revenue (ARR).

And now we’re talking – and maybe I’m not going mad after all.

I read an article in City AM recently that highlighted exactly this point – and one sentence jumped out at me. An investment manager quoted in the article said:

[We] measure what matters – tangible growth in companies hitting recurring revenue milestones vs. companies reaching valuations based on magical thinking.

That sentence could have been said at any TAB meeting up and down the UK: real growth and real milestones – not a valuation plucked out of the air to grease the wheels of the next funding round.

The article in City AM is specifically referring to cloud companies and quoted examples like Skype and TeamViewer (if you wondered who’d been sponsoring Manchester United this season). But I think the points it makes apply to all our businesses. Let me take a couple of other quotes from the article:

We’ll be looking to key growth benchmarks to identify the leaders of tomorrow.

[We] expect the VC community to turn their attention back to fundamentals where great products drive loyal, engaged customers and efficient growth of good old-fashioned revenue.

Benchmarks – fundamentals – great products – loyal customers – efficient growth and revenue. Words like that are what TAB is all about – and it’s why I am so pleased we have stuck to our fundamentals despite the siren calls of recent years.

In difficult times – and goodness knows, we have plenty of difficult times ahead – your business fundamentals are absolutely central to your success. What you can measure you can control: it’s been said a million times but it bears repeating. There is no substitute for regularly and remorselessly checking your KPIs and for the scrutiny of your colleagues around the TAB table.

It’s not you working for your business, it’s your business working for you. That’s why those fundamentals will always matter – because they’re what allow you to make a profit. Which in turn allows you to build your business, take care of the people that work with you and – ultimately - reap the rewards of the business.



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