Unicorns—private companies valued at $1 billion or greater—have taken a beating in the second half of 2015. Look no further than the latest tech IPOs from onetime unicorns Square and Match. Both companies' comparatively chilly valuations hint that the hype around unicorns is overblown, as observers have rushed to point out. But the reason why is at least partly a matter of semantics, which we all have the power to change.
In most cases, saying something is "just semantics" means it doesn't really matter. This isn't one of those cases. Lately, the term "unicorn" has been thrown around so carelessly that it largely deserves the stigma it's earned. The label has turned into a divisive misnomer. At one point, it was a sensible designation for a certain kind of company and (to some extent) served a useful purpose. But today there are more than 140 unicorns. That’s quite a lot of horned equines crowding the mythological startup stable.
I should know. My own company, Apttus, was recently named a unicorn. Every company grows in its own way, and truth be told, my fellow founders and I weren't all that well acquainted with either the hype or the acrimony that the label drew before we found it being applied to us.
It’s time to start making clearer distinctions. Much the way all wildlife isn’t the same, all unicorn companies don't share the same degree of long-term promise. No one's interests are best served by prescribing the same, one-size-fits-all outlook to such a wide breadth of startups. And judging a category by valuation alone isn't just unfairly harming the reputations of the companies concerned. It's also exaggerating the popular impression of a tech bubble that's ready to burst.
To set things right, we need to re-examine three of the most tried-and-true criteria for assessing companies:
Revenue and profitability: The most common criticism of unicorns (particularly those originating in Silicon Valley) is that they lack a clear path to profitability and return on investment. Companies that have a keen eye—or better yet, a proven track record—of actually building and scaling a customer base (revenue and all) have a leg up on the often amorphous, less-focused companies whose concepts have had to carry all their momentum.
Business model: Figuring out the right combination of partners, practices, and platforms isn't easy. Getting it wrong is why so many startups fail. Likewise, getting it right is essential. Investing properly in infrastructure and employees is a true indicator of vision and sound decision-making in any company, not just unicorns.
Sustainability: The market is actively looking for reasons to doubt billion-dollar-or-higher valuations. Getting past that starts with lengthening our perspective. It’s important to take a step back and evaluate things like customer sentiment, potential for brand growth, how well users respond to products, leaders' pedigrees and track records, and so much more. That takes closer scrutiny and patience. It's true that developing a resilient backbone takes time, but in the end it’s the type of framework that’ll weather turbulent market conditions and allow companies to go the distance.
Today, the speed of innovation has never been faster. We’re all on our own unique entrepreneurial journeys. That's all the more reason to be cautious about the terms we use to describe them—ours and others' alike. In this environment, generalizing is both easier and more counterproductive than ever. But we can do better simply by revising our vocabulary. Cutting the "unicorn" label from it is a good place to start.
Kirk Krappe is chairman and CEO of Apttus. A veteran of Enterprise Software, he was involved in the very first instances of the Internet and enterprise applications. Prior to Apttus, he served as CEO of Nextance and held senior executive roles at I-many, Oracle, and Siebel.