Joan Riera, Professor in the General Management and Strategy Department at ESADE, examines the companies that are winning over the market.
What do unicorn companies have to offer the market?
Unicorn companies have a value of over 1 billion dollars and are in very rapid growth. They offer the market a business model that has very close ties with social networks and is orientated toward end consumers. Unicorn companies represent flagships; they are widely discussed in the media and are culturally influential. They attract plenty of talent and are capable of drawing money into a given region, something that has been very evident in the United States.
What are their main advantages?
They break the market rules and offer disruptive solutions. By harnessing social networks they understand exactly what their customers want and are able to relate with consumers, gain their trust and address their needs. All of which means they attract a huge number of customers very quickly.
How would you characterize unicorns?
They tend to be companies made up of very young teams, around 34 years of age. It is notable that they do not usually have women at the helm. Only two unicorns have women CEOs. Most of the unicorns are based in San Francisco. This is because of the talent, investors and money that are available there.
What are their main disadvantages?
Such companies grow large very rapidly. The sustainability of turnover is a concern. This means plenty of uncertainty regarding their future. On the other hand, these companies operate based on a sharing economy that is well ahead of existing legislation. Countries are not ready for such a model, and even society sometimes snubs the sharing economy. There are legal conflicts, which represent the biggest weakness for unicorn companies. These firms are groundbreakers and provide utterly new services, which often creates legal conflict.
Is there a bubble?
I don’t think so. Nonetheless, I do expect some kind of correction going forward. These companies are valued based on future expectations, which is why people believe they are worth 1 billion dollars, and this is dangerous. They grow very quickly thanks to successive rounds of financing, while a stock market floatation is usually necessary, as their value is calculated based on future expectations, something that renders them very fragile. Banks are interested in such companies due to their striking growth.
Why has the United States taken the lead?
The majority of these firms are American due to the very particular ecosystem in the country, where this model receives huge backing. Valuations for such companies in Spain are usually lower, around 40 million euros, and there are few examples to follow in the country's business culture. Nor does legislation help, as the fiscal system exacts levies on saving and labor. Tax benefits are required to invest in such companies. Also, the highly inflexible labor system does not help to attract foreign talent. The situation in Europe is similar, although such companies are gradually getting off the ground.