Earning Their Stripes

Find out how to pivot a startup into a zebra, which is a business that aim to solve societal issues as well as make a profit. 

Unicorn companies are privately held startups valued at over USD1 billion. According to Crunchbase, an information platform on businesses, there are 452 unicorn companies, globally, with a total valuation of USD1.6 trillion. The success of these companies has encouraged many young people to set up their own startups.

Crunchbase also reveals that four in five young people aged between 16 and 21 years old are interested in starting their own business. The number of entrepreneurs aged below 35 years old, who have launched a startup business, has increased by 70 per cent since 2006. This is often due to the minimal cost starting up a business involves and it may even be free to enter the market.

However, as the number of startup businesses increases, competition among businesses becomes steep. This leads to 90 per cent of startups shutting down in their first five years. There are a number of factors that contribute to a business shutting down, but one of the major factors is the business model of the startup itself. Without a doubt, most entrepreneurs are ambitious to turn their startup into a Unicorn.

Earning Zebra Stripes
Unfortunately, most startups start to stagnate after a few years due to the lack of innovation after two to three years. This results in the company ultimately becoming less competitive. One area that businesses could look into to survive is reshaping their businesses from focusing on getting bigger, and monopolising the market, to one that aims at solving societal issues. These are defined as zebra companies.

According to Yifat Oron, CEO of LeumiTech, zebra companies are characterised by doing real business instead of disrupting current markets to achieve profitability and helping to solve a societal problem. The causes supported by zebra companies mostly involve alleviating social, environmental or medical challenges.

One approach could be for startups to focus on linking societal problems with Sustainable Development Goals (SDGs) as part of the company’s operations. Startups that plan to pivot their business into the zebra model can choose to apply two or three SDGs into their business. Generally, there are a number of core SDGs that can be used by companies to address societal problems. For example, they include gender equality in their recruitment process as well as sustainable cities and communities.

With the issue of equality, or inequality, a zebra company may create equal opportunities to improve the overall social economic standard such as a household rather than just an individual. This would help reduce the number of people under the poverty line. In addition, it would improve society’s general wellbeing because people are able to access proper healthcare treatment covered by their employer.

There are several studies that found a positive relationship between company performance and having a more diverse board. Credit Suisse reported that for gender diversity and corporate performance, the average return on equity for companies that had gender diversity on their board in a six-year period was 16 per cent, while companies without a woman on the board had a four-point lower performance than their gender-diverse counterparts.

Loosening the Constraints
The one major constraint facing startups is their operating cost. Hence, to deal with this constraint, they must carefully define the problem they want to address to ensure they operate a cost-effective business strategy. Doing this would assist startups to come out with a proper problem statement together with a significant solution.

Firstly, the business should focus on the root cause of the problem, the desired outcomes and the potential beneficiaries of the solution. This process provides an overview of the problems and guides the team towards how to achieve the objectives of the approach. However, take note that zebra companies not only focus on final products, but also on the business process.

Second, the company should justify why they need to solve the problem and align the effort with their company strategy. This effort should be able to be measured by the company and translate into company profit and loss. It’s important for a zebra company to run the business in profit in order to be able to solve the societal problem they are targeting and to provide ongoing business sustainability.

Third, the company should examine past efforts done by other companies, what the results look like, and any hiccup experiences they had during implementing a solution. By doing this, startups will be in a better place to be able to control the costs involved and to materialise the outcome.

Finally, come up with a problem statement that has a full description and outline of all the requirements.

Good Zebras
A good example of a zebra company is Switchboard. This networking alumni company founded by Mara Zepeda, who has a background in alumni relation, provides a platform for every participating university to closely engage within its community. It involves the university, alumni and current students.

For example, the alumni of a university may post on Switchboard to exchange jobs, connections and advice with fellow alumni, while current students may use Switchboard to build their network and to connect with other alumni before they graduate. According to Crunchbase, the current value of Switchboard is currently worth USD1.2 million, compared to USD20,000 seven years ago. The company has partnered with more than 10 universities, helping connect them with their alumni.

Another example is RockMyRun, which is a mobile fitness app founded in 2011 that provides running and workout music in the form of DJ mixes. Different to other music apps, RockMyRun blends music with body-syncing technology to help users get and stay motivated during workouts. The app uses the device’s sensors to detect the runner’s steps per minute and then automatically adjusts the music beats per minute to match the step count. It has been reported that the app earns around USD30,000 in monthly revenue.

About the Author
Author is part of the investment research team at UOB Kay Hian Wealth Advisors.

Main photo by redcharlie on Unsplash.