Written by: Ollie Watts
In years to come, 2020 will not be remembered as a jovial year. The COVID-19 pandemic decimated the global economy, to some ends worse than the 2008 financial crash. Finance has turned to science to be its savior as pharmaceuticals race to develop and have vaccines approved. The jump to reboot financial markets is in full-swing. Yet in a small, member-only area of the financial world, progress has not slowed. Hail the unicorns – privately owned companies with a valuation of over $1 billion – who have emerged this year: SpaceX, Gymshark, ByteDance, Klarna, to name a few. All in different sectors with something different to offer. Each have been on their own journeys navigating their respective markets in the past few years in hope of gaining access to this exclusive club. In past years the unicorns have more often than not been from similar industries such as financial services and technology. However, as new pioneers in these fields, will many of the 2020 unicorns set fresh trends and create new markets?
Why become a unicorn?
As noted, a unicorn is a private company with a market valuation of over $1billion. Traditionally, most companies reaching the $1 billion mark would be listed on public exchanges and would achieve the feat from swathes of global investors. Finding companies with a $1 billion valuation without backing of public markets was as rare as finding a mythical unicorn. Nowadays it is not as rare, but still hugely impressive.
Though certain structural and operational parameters will give certain companies some form of headstart on the road to becoming a unicorn, it is not an easy path. When the financial turmoil of the Covid-19 pandemic is taken into account, becoming a unicorn provides a wider amount of room for financial losses. If we put financial and disease crises aside, becoming a unicorn can be a prudent (given the amount of capital already amassed and in valuation) but effective way of showcasing viability to ‘go public’. This means to trade company shares on the public stock markets, of which the launch is called an initial public offering (IPO). If the IPO takes off successfully, faster growth is more likely to be smoother, supported by subsequently strong inflows of capital. If not, further funding rounds and strategic changes following the IPO to affirm a certain position will probably be needed. Saudi Aramco in 2019 is one such example. Effectively, not only does becoming a unicorn provide a larger market share, but it also provides ample room to grow – sometimes quite substantially.
Becoming a unicorn – is eureka necessary?
It is a common but often misinformed conception that an extraordinary product that one day springs to mind is needed for an initiative to take-off. Knowing what could revolutionise a market, and therefore provide an advantage, actually boils down to effective research. This is how major pharmaceuticals use R&D to find what medical products could put them at an advantage – a pill that rises above others in its class. There is no magic solution to finding the strategy or product that can take a company far. Sometimes it can be a case of not offering something wholly new, but different – a niche. This is exactly what recent unicorn newcomer Gymshark did in 2012. Its offering was providing gym wear like many other retailers. In contrast, however, it targeted the niche: affordable and fashionable gym wear for younger gym goers. This was in stark contrast to other retailers.
“At the time, brands were either selling baggy body-building gear targeted towards older consumers, or high-end and expensive fitness clothes that were designed to be purely functional rather than fashionable. (Nikki Gilliland, Econsultancy)
In other words, exploiting a gap that has been unnoticed and not capitalised on. Is eureka necessary? Not really, but if you do have one and it takes off then nobody can undermine it. The core message is being innovative does not always require the far-fetched. To coin the motto of the UK’s special forces, the SAS, ‘who dares wins’ – or at least it may do. The right market research will likely give a preliminary answer to the potential success of a product. After this, it boils down to delivery and timing.
What do the 2020 unicorns offer?
As seen above, GymShark offers a niche product focused purely on younger customers. So what do the likes of Klarna, SpaceX and ByteDance offer? A niche, or a new concept entirely?
Klarna certainly does not offer a niche, it builds on existing credit for now to pay later services. Nevertheless it is Europe’s largest fintech company and growing. The diamond is in the detail: the word ‘credit’ is largely elusive. It is not often mentioned. Credit often connotes the negative financial situation of borrowing money you do not have, and then are struggling to pay later. Just think of credit cards and this is likely at the top of your thoughts. To this end the marketing is at the forefront of strategy. If you present your offering from a different perspective, you may – and have in Klarna’s case – convince consumers to think differently as well.
12 million consumers completed Klarna transactions last year. The fintech giant logically expands on this through its product offering. Instead of ignoring, or worse, not stating a repayment schedule, Klarna’s offerings clearly set out these schedules: buy now and pay 30 days later, buy now and pay over the course of three monthly payments, buy now and pay over the course of payments totalling four years. Whilst not foolproof, and noting that Klarna is not regulated by the FCA like most financial services providers, it does offer flexibility. The ultimate responsibility is still on the consumer using the product. They also do not discriminate on previous credit scores, but undertake soft credit searches on customers. It really depends on perspective. Some will view this as another easy trap. It can be. The wrong consumer will still struggle into repayment issues. But it is perspective that is to an extent at the heart of Klarna’s strategy: think about credit differently and you can make it work for you without spiralling debt.
Undoubtedly a niche, and an eccentric one at that, the Elon Musk pioneered business offers something not yet conquered: space travel and visits. The idea is not new, it has been idealised and dreamt about for decades. It is the logistics of making it happen that has been the challenge. Not just the technology but also the financing. Those who ultimately ride on a SpaceX will experience something unparalleled to those outside the astronomical and aeronautic community. That is the niche in its wider context – the preserve of the few will be no longer. Space travel will be accessible to all, well, in theory. The prices and their trends – like the fluctuation of airline ticket prices – will be a core variable.
Until the TikTok security and sale saga in September, few will have heard of ByteDance, other than the corporate lawyers and bankers advising them in recent times. ByteDance is the technology company that owns and developed TikTok, the viral video-sharing app. The latter has seen a sharp rise in users as populations the world over sought ways to entertain themselves during Covid-19 lockdowns. As of October, it has had over 2 billion downloads and is set to have made $500 in revenue in the US alone in 2020. Though already a popular app, the pandemic has been an ironic blessing that has sky-rocketed its usage and coverage.
ByteDance’s TikTok prides itself on being much simpler and hassle free than other social media applications. Its focus has been on reigning in appeal, and building on that by developing an app that almost anyone can use – rather simply too. A TikTok video is easy to upload and it forms the sole basis of the platform, one focused on interactive media content. No matter how casual or formal the video, one can engage with it in several ways just through watching it. ByteDance has in some ways created a new niche of social media through TikTok. The idea is so simple but other social media apps have not quite capitalised in the same way. TikTok is currently still owned by ByteDance despite lots of speculation. I imagine the latter will want to keep hold of this viral app for many years to come.
Conclusion: any trends?
Each of the major 2020 unicorns covered have offered something different. The products/services they have created and offered open doors to new areas of their relevant markets, which will open more doors going forward. As more research is done and more markets are created, it naturally creates more competition and opportunities.
An evolution of new opportunity. This is the broader picture. Narrowing down to the trends the 2020 unicorns have set, they have set a useful moral as their refreshing trend: being innovative does not always require the extraordinary. Originality is just as useful. As many companies are demising as a result of Covid-19, some worsened by prior disengagement of their target audience, this is helpful to emerging startups and those companies seeking fresh direction. Knowing your target audience and your market inside out is a good guideline. Further than that, there is also that timely element of luck in the ever-competitive world of business. Originality and knowing their niche – which provides an edge – is the overall trend set by the 2020 unicorns.