Welcome to ZOMBIE(corn)LAND!
Startups are no longer high flying unicorns - Many are now ZOMBIECORNS!
I don’t think I can resist making the analogy. It’s just too obvious, and the chance for witty humor and snarky commentary is just too great of a draw for my reptilian brain. If you haven’t seen the movie “Zombieland”, go watch the entire movie first and then come back to this post. If you want to see a short summary of the rules here’s a video to give you a refresher course!
It’s a new world. Zombies have taken over the planet. They are biting and infecting every living thing in sight. That includes privately held unicorn companies! Once bitten, these companies become something different, something evil, something dangerous! Technology startups are now fully in the land of the Zombiecorn! OK, what exactly do I mean by Zombiecorn? It’s a literary cross between Zombie and Unicorn. It kind of looks like this:
Thanks for reading The Cyber Why! Subscribe for free to receive new posts!
The Death of The Unicorn Era
For most of the last few years, the technology news was overrun by discussion of Unicorns. Unicorns are privately held technology startup companies that have greater than a $1B valuation. In 2021, there were so many unicorn company announcements hitting the news outlets that Crunchbase even started its own “Crunchbase Unicorn Board”. Tracking the announcements and discussing them on the Enterprise Security Weekly Podcast, where I am a co-host, was nearly impossible. There were multiple announcements every single week. But then something happened.
In March of 2022, the private market turned south. Publicly traded technology company valuations were being crushed as the Federal Reserve raised interest rates. Money was no longer free and eventually the damage and difficulties rolled over and hit the private markets as well. The once high flying unicorns were being slaughtered as their perceived valuations were cut in half and sometimes as much as seventy percent or more. IPOs were pushed out, layoffs occurred, and companies began to batten down the hatches as the Zombiecorn apocalypse approached.
Enter The Zombiecorns
As the economy slowed and the Fed continued to push rates higher, companies no longer had enough raw revenue, or revenue growth, to justify billions of dollars in company valuation and/or to cover their debts. To make matters worse, the path to get to that high flying valuation required deep cuts, extension of the current runway by years, and a reduction in spend that could relegate growth to a much smaller rate.
Many companies hit what is called “Zombie” status. A zombie company is a company that generates just enough cash to pay interest on their debts, and in the case of venture capital backed companies, a zombie is a company that does not have the runway to grow into their current valuation yet they have a significant amount of runway available. They are essentially the walking dead.
Eventually many of these privately held, former unicorns, will face a reckoning when they become recognized as slower growth companies that can barely service their debt (Zombies) and nobody will want to throw additional free money at them. These companies will forever be known as “Zombiecorns!”
Welcome to ZOMBIELAND!
For those that aren’t in the know, Zombieland is a movie that was released in 2009 starring Woody Harrelson, Jesse Eisenberg, Emma Stone and others. It’s a cult classic that chronicles a group of people as they experience life in a post zombie apocalypse. Throughout the movie the lead character goes through his “Rules of Engagement” in order to survive.
So what does this have to do with startups? I’m so glad you asked! In this article we will take some of the Zombieland rules of engagement and map them to our Zombiecorn universe.
Companies can avoid becoming a Zombiecorn if they follow a few specific rules. Some of them will be hard, many impossible, but if they watch what they are doing closely they can avoid being the next unicorn that has to take a double-tap to the head.
Rules of Engagement - How to Avoid Becoming a Zombiecorn
Just because you have a valuation of $1B or more doesn’t mean you have to become a Zombiecorn. As a matter of fact in the movie Zombieland all you had to do was follow the main characters numerous rules and you never had to endure a zombie outcome. Just follow these “simple” rules of engagement and you and your company can avoid the Zombiecorn fate.
Rule #1: Cardio - When the virus struck, for obvious reasons, the first ones to go were the fatties
Ok. So I know this is totally not politically correct, but I didn’t make it up - It’s literally the very first rule to avoid becoming a zombie in the movie. But I do think it holds up here in our Zombiecorn universe as well. The first thing you need to do to avoid the Zombiecorn fate is lengthen your runway. If your runway is long enough to get you to the point where you can justify your valuation you can absolutely avoid being a Zombiecorn. Lengthening your runway can be done in three different ways:
Spend less money - The direct result of spending less money is less burn and thus a longer runway. This isn’t always the best option as this will also have a direct impact on the growth rate of your business. You have to trim costs where they will have the least impact on how you perform - Specifically you have to “trim the fat.”
Make more money - The other way to increase your cardio is be better at what you do. You have to make more money, faster. This means improving the rate at which you sell product, sign up new users, convert prospects, etc. It’s all about being more efficient as a business than you were before. Combine this with spend less money and you get the very stereotypical statement - “Do more with less”
Get additional money from investment - Finally if you are lucky enough to have a very strong business with metrics that are reasonably efficient and high enough growth rate you can still raise money. Only the best companies out there will be able to use this approach to avoiding Zombiecorn status so I wouldn’t rely on this one if I were you!
Rule #2: Double Tap - In those moments when you're not sure the undead are really dead dead, don't get all stingy with your bullets
This rule translates to Zombiecorn land in a slightly different way. We aren’t talking about killing zombies with this rule, but instead what it means is that cuts can’t be shallow. If you take one bullet to your company in an attempt to make changes to avoid becoming a zombie you may not survive. The decision to make cuts means making them deep enough that you can be assured of the required outcomes. Don’t just layoff 10% of your workforce today if you think it’s really going to take 30% reduction in force to achieve your goal. Otherwise, you may enter the death spiral of layoffs and cost cutting that results in you going to zero, a fate worse than being a zombie. When in doubt cut deeper than you need, be kind yet aggressive when making the call, and focus on recovery after the damage has been done.
Rule #4: Seat belts - Fasten your seat belts. It's gonna be a bumpy ride
Expect the ride you are about to go on to be extremely bumpy and to have many significant days of ups and downs. Communication with your employees in as transparent a way as possible will help them understand the “why” behind the decisions you have to make as you avoid a Zombiecorn fate. Help your employees come to terms with the decisions being made by encouraging them, upfront, to buckle their seat belts. If they expect the rollercoaster to nearly bounce off the tracks they will be much more able to handle the ride.
Rule #7: Travel light - And I don't mean just luggage
Avoiding Zombiecorn status requires you to closely analyze all of your spend. From human resources to Amazon bills and even to whether or not you want to continue to offer free lunch on Wednesdays in the cafeteria. It’s impossible for me to be prescriptive to you as every business is different when it comes to what they can cut and still get great efficiency out of their employees. The point of this rule is to be conscious and critical of your spend and make sure you travel as lightly as possible. Every penny that you spend gives you additional runway and helps you to achieve the ultimate goal of building a profitable business.
Rule #15: Keep an exit free and Rule #22: When in Doubt, Know Your Way Out
In the movie, there is always the chance, that no matter what you do and how you do it, you will come in close contact with a zombie and run the risk of being bitten. To avoid that fate you have to always know your exits. Know how you can get out when the going gets tough.
In Zombiecorn land this equates to making sure that you are nurturing the exits that would be possible for your company along the way. The last thing you want is to be cornered at a stage when the viability of your company is at hand and all you can do is scream for help. Know who your friends are, what companies would consider you as a potential strategic acquisition, where you can catch an exit if you really had to, and remember to always keep your options open. Optionality is the name of the game when you are running in a world with a high level of macroeconomic risk.
Rule #17: Don’t be a hero
You can’t do it alone. In the new world of the Zombiecorns, founders and leaders must look to their team to help carry them forward. Lead with passion, be transparent whenever possible, and help others to rally to your cause. If you try to be a hero and lead in silence you will not make it. Remember it took a team of people to get you where you are today, it’s going to take that same team of people to save you from the Zombiecorn fate.
Zombiecorn Land - Good Luck Surviving
There’s a huge number of other rules that they use in Zombieland the movie and almost all of them can be adapted to our fictional Zombiecorn land. The moral of the story is that in order to avoid becoming a Zombiecorn, you have to stay vigilant, diligent, and always be thinking one step ahead of the rest of the world.
As we go through the ride of the looming recession, companies will have to focus on efficient use of the funds they have and learn to extend their business runway as much as possible. Spend less, focus on your business metrics, be efficient with your capital, never run out of runway, and make decisive decisions that lead to the best outcome for your business.
Remember, in Zombiecorn land there are lots of ways to get bitten and you have to avoid all of them!
Thanks for reading The Cyber Why! Subscribe for free to receive new posts!