Are Zebras the New Kings of the Start-up Jungle?

Professor Rod McNaughton, CIE Academic Director

The Centre for Innovation and Entrepreneurship’s Academic Director, Rod McNaughton, questions the search for unicorn start-ups, arguing that herds of zebras may be better for our economy and society.

Forget unicorns; it’s time to let the zebras out of the zoo! In start-up ecosystems, the billion-dollar unicorn has been the pinnacle of success. But, a new breed of venture is making its mark – the zebras.

The term “unicorn” emerged from an article by venture capitalist Aileen Lee in 2013 and was quickly adopted into the global startup lexicon. A response titled “Zebras Fix What Unicorns Break”, published in 2017, started a shift in rhetoric. Since then, many business commentators have argued that we need herds of zebras, not rare unicorns.

Unlike their mythical counterparts focused on rapid, often unsustainable growth, zebras are about slower sustainable growth and balancing profit-seeking with social and environmental responsibilities. They are called zebras because of this balance. A zebra company is both black and white: profitable and working to improve society. They are also oriented toward their community, as zebras are to their herd.

Zebras vs. Unicorns

Unicorns are ventures valued at over $1 billion. They epitomise rapid scaling and significant financial achievements, often dominating economies and transforming social and professional behaviours. However, their relentless pursuit of growth sometimes leads to unsustainable practices, leaving a trail of economic and social issues in their wake. Aotearoa has spawned fewer than a dozen unicorns, many of which have moved fully or partially offshore.

Zebras, on the other hand, are real animals, symbolising real-world values. Zebra companies prioritise both profitability and social and environmental impact, embodying a more sustainable approach to business. These ventures aim for steady growth, employee welfare, and long-term sustainability. Unlike unicorns, which rely heavily on venture capital and rapid market expansion, zebras are often bootstrapped. They are embedded in and focus on the symbiotic relationship with their communities.

It takes many zebras to generate the equivalent economic activity of a unicorn, but the benefits are more sustainable, and they are more likely to stay at home. There are thousands of potential zebras in Aotearoa, collectively surpassing the impact of a few unicorns, but they need our attention to help them prosper and grow.

The Economic and Social Impact of Zebras

Why are zebras capturing imaginations globally? Because, unlike unicorns, they are real. Zebras contribute to local economies by embedding themselves within community frameworks, supporting local employment, and reinvesting profits locally. Some of the benefits of zebras are:

• Sustainability and resilience: Zebras prioritise steady, sustainable growth over rapid expansion. This makes them more resilient to economic fluctuations and less likely to collapse under financial pressures, including from rapid growth. Their social and environmental responsibility focus aligns well with Aotearoa’s reputation for green growth and environmental preservation.
• Community impact: Zebras create local jobs and contribute to regional development, strengthening communities. They create quality jobs, helping to retain highly qualified workers. By reinvesting profits into the community, zebras enhance local infrastructure and services, fostering a robust local economy.
• Social responsibility: Zebras address social issues and improve community welfare through their business models, often including social entrepreneurship elements. They emphasise fair wages and good working conditions, improving the quality of life for employees and their families, leading to greater well-being and more stable communities.
• Innovation with a purpose: Zebras innovate in ways that benefit society, not just shareholders, leading to the development of products and services that address real-world problems and improve quality of life. By targeting sustainable and socially responsible market segments, zebras open up new business opportunities that unicorns might overlook.
• Economic diversification: Zebras often operate in diverse sectors, contributing to a balanced and diversified economy. This can reduce dependency on a few high-growth industries and spread financial risk. Encouraging the growth of zebras can bolster the small and medium-sized enterprise (SME) sector, which is vital for economic stability and innovation.
• Diverse and equitable ecosystems: Zebra firms promote diverse and equitable ecosystems by adopting alternative funding models like bootstrapping or attracting socially conscious impact investors. This contrasts with unicorns, backed by venture capital firms, often criticised for overlooking firms founded by women and minorities. Diversity helps foster innovation and equity, contributing to a more resilient and socially responsible ecosystem.

With its vibrant start-up ecosystem, Aotearoa is a fertile ground for zebras. By amplifying the zebra narrative, we can inspire a generation of entrepreneurs who aim for financial success and make substantial social and environmental impacts in their communities.

Supporting Zebras: Creating a Sustainable Ecosystem

We need more innovative thinking on how to support and nurture zebra companies. It’s not just about alternatives to venture capital funding but undertaking a range of actions to create a supportive ecosystem that values Zebra’s sustainability and community impact as much as their profit potential. Here are some examples of things we could do to help grow our herd of zebras:

• Access to alternative funding: Establish community investment funds that pool resources from local investors to support zebra start-ups, ensuring that capital is available for businesses prioritising community and social impact. Develop financial instruments that provide long-term, patient capital, allowing zebras to grow sustainably without the pressure of rapid growth and exit.
• Tax incentives and subsidies: Offer tax credits for social and environmental impact, similar to R&D credits, or grants and subsidies to help implement sustainable and eco-friendly practices.
• Education and Training: Integrate zebra entrepreneurship principles into business education programs, fostering a new generation of socially responsible entrepreneurs. Offer training programs focusing on sustainable business practices, social entrepreneurship, and community engagement.
• Networking and Mentorship: Establish mentorship networks that connect aspiring zebra entrepreneurs with experienced business leaders who can provide guidance and support. Create incubators and accelerators that specifically support zebra startups, providing resources, training, and networking opportunities.
• Public Procurement Policies: Implement public procurement policies favourable for SMEs that also favour suppliers demonstrating sustainable and socially responsible practices, creating market opportunities for zebras. Encourage local sourcing for government contracts, supporting businesses that reinvest in their communities.

The Future of Entrepreneurship: Herding Zebras

The entrepreneurial landscape is evolving, and the rise of zebra companies signals a shift towards more sustainable and community-focused business practices. By supporting and nurturing these ventures, we can create a more resilient economy that benefits everyone.

Japan is pioneering support for zebra firms, which it defines as those striving to create a better society from a long-term perspective. Starting in June, the government will launch pilot projects to help zebras collaborate with local governments, banks, and companies. The Ministry of Economy, Trade and Industry has earmarked ¥600 million for pilot projects in 20 areas across Japan.

Aotearoa is well-positioned to jump on board this movement. As a small country with a strong sense of community and commitment to sustainability, it can become a hub for zebra companies, setting an example for the rest of the world.

Isn’t it time we striped things differently?