How to kill a unicorn from the inside.
All characters and events in this post, even those that took inspiration from things like the company profiled in links below, are entirely fictional. Any similarity to things that happened or are happening at actual companies, living or dead, is purely coincidental; though not surprising.
So you've just taken in a Series C or D or E or K round that has pushed your company's valuation, in the opinion of a small group of people, past the $1,000,000,000 mark! Congratulations are in order. I trust you've already ordered the ballpit for installation in one of your new offices; get on that if you haven't! The supply chain is a mess.
Anywho, here's how you go about ensuring your newly minted unicorn will eat the pavement in a few years time, following a playbook I was able to assemble through observation from the inside of a company that was – at the peak – pulling in millions and growing every week while accelerating towards the ground.
1. Hire faster than your company can culturally absorb
The whole point of VC is to launch an artificially large company into orbit without the revenue that would keep it in orbit, and pray the revenue arrives before gravity does. Closing a funding round comes with an expectation that the whole investment will get deployed in the subsequent 18 months, give or take.
One of the best ways to have a Bad Time as a founder of a VC-backed company is to close a round and then not follow this rule. You're to put their money where your mouth was when you raised the round, and you do not take your sweet time about it.
So you've taken a growth round in the $50M or more range! Raising a small army of account executives and sales associates is a default move; but experienced engineers and seasoned senior managers across disciplines like marketing and business development make deep dents in that slug of cash.
Targeting splashy industry insider hires can generate lots of buzz within the industry sphere you're trying to disrupt, or within the developer communities around the tech stack you use. Your still wildly unprofitable venture will gain a new veneer of legitimacy, and you'll see steady interest for open positions with the hot startup on the block, for a time.
A job at your company gets pitched by your recruiters like a high-end consumer experience in itself, with lots of unique quirks and perks. When that all inevitably wears thin and the pace starts to stall, offer excessive bonuses for employee referrals, and sometimes for the new hires themselves, to keep those weekly orientation tracks well attended.
Any company culture regardless of strength is made completely irrelevant under these dynamics. Floods of new employees bring habits and preferences and ways of working and interacting from their previous experiences, and your carefully cultivated core principles are empty platitudes if the newbies aren't consistently outnumbered by your true believers in their day-to-day work.
2. Expand your footprint and go on a ravenous acquisition spree just because you can
With the newfound momentum and attention and expectations comes an entirely new category of problems for the founders and C-suite to grapple with; this is where they detach from the core product and refocus their priorities around building a company that will hopefully IPO soon. This is a refreshing and exciting change of pace from being down in the trenches. You now have a Six Sigma Wheel of Domination to fill. It's about building geographic lists of markets to open operations in, building lists of teams to pile new hires into, and building lists of bankers and insitutional investors to start plying.
So if hiring a buttload of new people very quickly seems good, doing just that in a bunch of new and far flung places is one better. Even if you mandate a remote-first cultural posture and don't strictly require people to commute in, organizing teams around local offices ends up being the easiest route to keeping an acceptable level of legibility on your workforce.
Form a dedicated team for establishing new offices and make sure they stay busy. The process of opening satelite offices – signing leases, doing interior design and buildout, and purchasing furniture – is an efficient means of chewing through capital, and ribbon cuttings make for great social media posts. Your 'Contact Us' page gets more impressive with each new address and plus-something phone number that you get to add. Projecting an 'international megacorp' vibe is the main goal here.
If you want to tackle the side quest of generating intractable internal fragmentation and tribalism, it's hard to improve on the strategy of opening many satellite offices in parallel. Don't relocate existing management staff to run them; hire fresh management along with the staff to guarantee that these outposts will be disconnected from the core, left to sort out their own particular ethos. Here you'll find primed engines for discontent and cynicism when the good times stop rolling, or when your priorities and roadmaps shift.
But if you do want to improve on that strategy, the best option is to go buy some other tangentally related companies. It's a turnkey way to get everything mentioned above, but with feeling. If incorporating new individual employees into a company culture is a disruptive task, absorbing another previously independent and fully formed culture is like a large asteroid slamming into a planet.
With each acqusition, you suddenly have a bushel or two of new employees who find themselves with a company they didn't interview for, and a smattering of senior management folks who find themselves several rungs down the org chart from where they were previously, and a wad of disconnected software on its own stack with its own highly territorial engineering team attached.
Again, with the growth-stage rounds, the VC model practically demands you do this to some degree. But to maximize the effect, make such an acquisition roughly once a quarter. Buying ARR while being publicly handwavey about increases in bookings makes it easy to construct a facade of parabolic growth with growing momentum, even if the wave of buzz-driven bookings has already crested.
Kick your marketing team into overdrive presenting your core business and new acquisitions immediately as a fully integrated and 'synergistic' whole, and get the business press to echo that message uncritically; when that's quite plainly impossible to achieve in less than six months at the bare minimum on a technical, operational, or cultural level.
3. Launch speculative new products that are adjacent additions and not core multipliers
You're well into your hiring blitz and you need to slot all these people into meaningful work that will advance the company. Chances are, a good bit of the stuff you had in mind when you pitched and closed the round is no longer relevant; the state of the industry and your understanding of product hypotheses doesn't stand still for half a year while you're busy attracting talent and staffing up. Much of the shift in priorities will result from early jostling between some of the new hires you bring in, with their fresh (or stale, as the case may be) perspectives.
Good thing there's all these new people around to sort that out for themselves, while you're consumed with your Wheel of Domination. Your thriving new middle management layer has the perfect opportunity to go about building their fiefdoms.
Some teams were assembled with specific products in mind that got those new hires interested in joining – make sure some of those projects get rug-pulled, pushing those teams immediately into low morale. The product org has several new cross-functional engineering teams blinking at them, expecting to work in parallel, but they haven't sorted out how to map those teams onto the dependency-laden roadmap they charted a year or so ago. Don't forget about all those acquisitions you made; they all know they won't sit atop the throne, but that doesn't mean they're about to give up their land easily.
You may begin learning that there was a lot less growth left in your core offering than you thought when you hired all those people. When it starts to dawn on people that meaningful work is scarce despite the explosion in head count, everyone will scramble to find — or more likely, invent — things to build that they predict will be 'load bearing' in the name of self preservation.
The main output from engineering will become products for their colleagues at the company to use in their engineering, things which are obviously over-engineered but justified as 'future-proof' in response to the whole international megacorp vibe you cultivated above. The core product experience languishes because that's the old boring 'legacy' stuff that nobody wants to work on, despite generating millions in revenue.
Take whatever transigent issue is the hot topic in your industry from month to month, and pull your product org into reacting to that. Describe it as 'low hanging fruit.' The new things that get launched to customers from these spasms don't carry your core offering forward, but instead are what product thought could be marketed to your existing customer base. They can only be pitched as "and also we do..." not "and then you can...", muddling your sales process as your menu expands.
The standard motions around product launches are adhered to, press releases are pressed and gushing LinkedIn posts are posted. Analysts that produce quadrants gobble it up and continue to stick you towards the upper right. Most of these new things don't work particularly well, but some kinda do.
Every half year or so, re-define your mission statement and target customer around the kinda working things, and hold all-hands to rally your entire company around them as the new company-making (or company-saving) initiatives. When they ultimately don't show the post-launch torque that your core business did back in the seed round days, crater your credibility with the rank and file by remaining a steadfast adherent to the principle of letting things fail fast, and shuting them down.
4. Cultivate a belief that your model is profitable with scale while your core unit is not
This last page of the playbook is run at all stages during this process, but I mention it last because this is the gravitational pull that ultimately brings the whole thing crashing down. So many startups believe that they have a profitable unit, and they can make a slide outlining what appears to indeed be a profitable unit; but it's that way because the business is at an early stage, and you can get away with the big honking asterisk that you're only considering gross profit before accounting for paying people.
You have an idea of how much of your employees' time ought to go into your unit at full maturity, but you're far from that point, and it's just a guess. Being involved with the company, however, requires faith that your hunch is correct, the unit really does become profitable with more customers, everything works out, the revenue arrives before gravity does.
And if you've gotten to this point in the post you should understand that everything prior was about keeping busy making that asterisk really really big. You can ignore it for a time, you can spend five dollars to make three, and keep doing that over and over, in rapidly increasing numbers, so long as you can raise the next round. Everyone inside has bought into that veneer of legitimacy, though; that it's unthinkable that a company with such a high-caliber roster and a great culture and a ten-figure valuation could just ... not be viable at that size.
It's this cultural buy-in around the invincibility of the company that allows everyone to simply not ask concrete questions about where the business actually needs to scale up to in order to support your headcount without a loot drop every year, or not feel the need to challenge all the thrashing you're doing from a product standpoint. That ARR tabulation that you multiply by twenty to justify that eye-popping valuation starts to feel a bit smaller when you realize your rapidly maturing core business model has to still double or triple in order to support just the people you've already hired.
Real grown up businesses in the SMB category today need roughly $1M in annual revenue per ten employees to be sustainable; to retain talent in tech ventures with proportionally more people in expensive disciplines, that ratio is more like $1M per five, or even three employees. So if you're aggressively scaling headcount towards 1000 or more, you're gonna need somewhere in the neighborhood of $250M in ARR to be viable.
Startups are magic in this way, these rules just don't apply to them, until suddenly they do.
That next round, and at this rate you need that next round, becomes significantly more difficult to raise. There's no one reason. A lot of internal factors, sure, we outlined a bunch of stuff above. But maybe those recession rumors last year became somewhat of a reality this year and the market is just that much tighter also. Perhaps your existing investors can't or won't participate in another round. Maybe SoftBank finally ran out of cash. But doing anything other than raising a larger round at a higher valuation to goose more growth will make it immediately apparent that things are about to get tough.
Some of those flashy hires you made a year or two ago start to pack their things. The farewell posts are glowing, thanks all around, can't wait to see what great things the team will do, etc, etc.
Then comes the hiring freeze. The orientations aren't regularly scheduled on Mondays anymore.
Then comes the reorg, to better align your team structure with customer needs, or something like that.