Do Lean Unicorns Exist?

It is now a consensus view that early stage startups can be highly capital efficient, one of the key ideas behind lean startups. It is also a consensus view that scaling startups is capital intensive in order to reach the status of a unicorn. But do lean unicorns exist?

Press articles regularly show lists of startups who have received the most funding, apparently as a badge of honor. They forget to mention that many of the startups on these lists have not yet proven their unit economics and the dilution on the cap table also happens to be extreme.

Conversely, capital efficient startups are sometimes described as lacking ambition. The implicit message given is that the entrepreneurs are not thinking big enough, or that they are not willing to sacrifice enough of their personal lives.

What if there was a startup that only raised US$2M in outside funding before its IPO, and the IPO itself was triggered not by a need for cash but because of the number of shareholders? What if that startup led to the creation of several billionaires and many more millionaires? What if one of those people went on to become the richest person in the world? That lean unicorn exists in real life and it is named Microsoft.

Of course, Microsoft is an outlier. It was even started before the term lean startup. But, then again, all successful startups are outliers. Average statistics about startups are not helpful because they fundamentally misunderstand that successful outliers reflect power laws. Is Microsoft the only lean unicorn? Was this something that only happened for software startups from the 1980s? Hardly. A list of recent capital efficient exits shows that lean unicorns continue to be seen in real life.

So what are the lessons from history about capital efficiency? Of course, a capital efficient approach is not the only way to build a successful business. However, scaling a large company does not automatically have to be capital intensive. Capital efficiency at scale is possible, and the upside is tremendous. Lean unicorns do exit.