Bursting the Bubble: Chris Cabrera's 'Unicorn Fallacy'

Foreign.

Fallacy. What is the basic premise of that book?

The unicorn fallacy. I'll even, I'll show you a little picture of it. There it is. This term unicorn started getting applied, got applied to companies that were private that had a billion dollar valuation. And I thought, wow, that's, that's incredible. Like, that is really unique and hard. And the. Their initial unicorns were people like, I think Facebook and, you know, deserving companies that truly were unicorns. Then it became kind of this, oh, I'm going to make my little startup a unicorn. It got to the point where everybody you'd meet was a, their business was a unicorn. I would meet these young entrepreneurs and this is after I've taken exactly public. We were never a unicorn. We never got the billion dollar, you know, valuation before. And I would talk to these guys, I'd be like, wow, so you're a unicorn. Like, that's incredible. Good idea. How? Well, what's your revenue? Oh, we're doing, we might do 10 million this year. I'm like, you might do 10 million and you're worth over a billion dollars. Like, how did you get that valuation? That is totally insane. I forget the numbers right now, but I want to say, I just read an article the other day. I think there's somewhere close to 3,000 unicorns still right now. And something like 80 or 90% of them are what they call zombies, right? Meaning that they had raised a bunch of money. They still have some of this money, but because they raised it at these ridiculous valuations, the company's dead in the water. No one could ever raise, they can't raise any more money. No one's ever going to put money in them. The employees have no idea why they stay. The unicorn fallacy was really written because. Exactly was is a really interesting case study of both. Right. Like in the early days, prior to the IPO or even after the ipo, we fell into that. Everything was around growth. All anyone cared about was growth. We never made one penny in the first 12 years of the company because if I had, my board would have said, what are you doing, Chris? That's stupid. Go grow more. Right? You don't. We don't want you to make any money. When Vista bought us in 2017, it was kind of like the adults joined the party and said, guys, this isn't how you build a business. Like, we're going to build a business that actually is sustainable on its own and has both growth and ebitda. And it was like, wow, what a concept, you know, like I had gone to business school and I didn't remember taking any classes on how to lose money. And yet that's all I did for 12 years. And that's all anybody ever wanted of me. Even being a public company. The contrast was kind of astounding. And this book is sort of about that journey of how we did it and how I think the mentality for companies should not be to focus on growth at all costs, but to, to focus on healthy growth but also have some healthy ebitda. And don't fall for this fallacy of becoming a unicorn if you're a young entrepreneur because you're going to regret it.

So what you're saying is that some of those unicorns begin to fizzle because they're cannot sustain the growth.

Their valuations are so high. If you raise money at a billion two and you're doing 10 or 20 million dollars, a 10 or 20 million dollars company in today's world, maybe you get 200 million for that, right? Maybe if everyone's bought shares at a billion two and the company's really only worth 200, like what do you do? There's a repping coming to these companies and what will happen is many of them will go out of business when they run out of cash. Many of them will get, you know, have to do massive reverse splits and kind of wash all those investors out, you know, but they'll be very painful and in the people that will be will suffer are the employees.

Now you're giving speeches on that. What was the latest keynote that you gave?

I've been doing a lot of keynotes interestingly enough to a lot of these PE firms, at PC firms. This book, the audience is really more like CEOs, right? And so the, so where I speak is more where CEOs are going to be. And you know, anybody who's running a company of any size that wants, you know, ideas on what could, how can I cut costs while, while, you know, still, you know, we don't want to shrink our way to success. That's not what it's about. It's about building a healthy, strong, growing business. But do it with some common sense and do it with an approach to the bottom line that I think has been lost in a lot of the, you know, VC backed world historically.

You also talking about the right mindset for a business to choose the path of the growth, be organic and sustainable.

I mean when you're spending other people's money and they don't care, I mean you spend it. But when you're spending money as if it was your own, you're going to make different decisions. I try to think about every dollar I spend, even at Praverity, as if I'm writing this check out of my personal checking account. And it makes you ask harder questions. It really does. But you know how many people think that way and do that? Not very many. And the bigger you get and the more money that's flowing around, the less that that happens, and that's when you get in trouble.

I recommend that our listeners go to Amazon.com and get a copy of the Unicorn Fallacy and let me know what you think.

You know, I'd love to hear any feedback.

Thank you so much, Chris, for your time and for your patience and for sharing all your insider knowledge, which is probably worth more than a billion dollars right now.

Yes, it's.