Even Unicorns Bleed: Why To Stay Lean When Cash Is Abundant And Growth Feels Inevitable

Founder and CEO, Hotel Engine.

Unless you’ve been living under a rock, you’ve seen the widespread layoffs hitting every industry—especially in high-growth tech companies.

Even fresh off the heels of billion-dollar valuations and quadrupled headcount, tens of thousands are getting pink slips every month.

As it turns out, unicorns bleed, too.

The Great Correction

We all know that sooner or later, markets correct themselves. While their business models certainly aren’t broken, we’re now seeing a “Great Correction” after several years of crazy valuations and loose money.

Simply put, loose money creates bad habits—and many acted without discipline.

As visions of dollar signs danced in so many heads, greed leapfrogged rational thinking and overshadowed sustainability. New hires swelled at an unsustainable rate. Caution was thrown to the wind, and growth was fast and loose.

The tricky thing is success can sometimes blind us to cracks in our companies. Red flags turn into green lights when business is booming. To keep chasing hypergrowth, the easiest strategy was throwing people at problems. But rather than solve issues, it created bloated fixed costs and bloody balance sheets.

As Warren Buffett put it: “Only when the tide goes out do you discover who’s been swimming naked.”

The tide of cash is out—and there are a lot of naked tech folks scrambling for a beach towel. The compensation wars, wage inflation, crazy valuations and massive hiring based on temporary scenarios created a bubble that had to burst—and it did.

This is why a balanced approach to growth is often the best default. Over the long haul, it’s better for businesses and their teams. That way, you don’t have to ride the rollercoaster we’re seeing hurdle down the tracks right now. However, balanced doesn’t have to mean passive or slow.

My long-time mantra has been “Grow or Die.” We should still raise money when necessary and prioritize growth, but we should do so aligned with healthy KPIs and metrics. Don’t throw good money after bad. Spending $10 to get $2 back isn’t a good move.

I promise I’m not a doctor refusing the medicine I prescribe. And it may sound like obvious advice today—we weren’t burning money when burning money was cool.

I bootstrapped my first company to $100 million in seven years. And my second company reached a $1.3 billion valuation within two years after raising our Series A of $16 million—which is 90% less than the average startup raised to reach the coveted unicorn status.

Aggressive growth and sustainability are not mutually exclusive.

Three Tips To Run Lean

For CEOs concerned about cash flow right now, sit down with your head of finance and, line by line, cut anything that doesn’t point to direct ROI or smells of ego.

1. Rethink your SaaS tools. Every new person you hire wants the tools they’re comfortable with. In my experience, it’s never the ones you currently have.

Be careful because it’s very expensive to rip something out and plug in something new. No tool is perfect; there will always be trade-offs. Laser focus paired with tight goals will accomplish exponentially more than any tool.

2. When it comes to your team, measure effectiveness and productivity. Stay small and scrappy where you can because more people doesn’t always equal more productive output. Add specialization only when it truly makes sense.

And when you do hire, invest the proper time into your recruiting and selection processes. Hiring the wrong person is extremely expensive. Create the space to get it right and invite your best and brightest into those hiring decisions.

3. Harness extreme focus. It isn’t about cutting things you don’t want to do but are on the idea board. It’s about mercilessly chopping away the fun and exciting stuff you do want to do. If everything is a priority, nothing is a priority.

You have to stay sharp to grow wisely.

Grow Wisely

The bottom line is that growth is still the No. 1 metric for predicting future success. But it has to happen without unreasonable burn rates and hiring beyond what your true metrics allow. In 2022, our company grew from 150 to 400 with a healthy balance sheet and very little burn.

However, we also learned two valuable lessons.

1. Make sure you have the infrastructure and leadership in place to support your growth.

2. Ask if your product and/or processes are ready for rapid expansion.

The simplest way to do this is to ask: “What’s the first thing that breaks if we double or triple volume?” This will save your sanity and the balance sheet.

Whether or not you’re ready for these shifts toward running lean, investors have already made it. High burn rates land differently than they used to. Incentives are being aligned with capital efficiency and growth, putting us on our way to a more sustainable business-building future.

Ultimately, this is a good thing. It will force many companies to build more durable, financially sound businesses—and lead to fewer layoffs and better outcomes for employees and investors.

Be wary of fads and trends, and do the unsexy work of making disciplined decisions.

Unicorns can certainly bleed—but sometimes, they don’t have to.

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