Here’s an interesting thought experiment. What’s the last really big, wildly profitable company that Silicon Valley has produced, the kind of company that grows like crazy and throws off so much profit that it seems like it’s printing money? As far as I can tell, the last tech company that fits this description is Facebook—which was founded in 2004. That was fourteen years ago. Since then, the bros and VCs in Silicon Valley have been swinging for the fences and striking out, over and over again.
To be sure, Twitter (founded in 2006) managed to eke out tiny profits in two recent quarters, but this came after years of losses that totaled billions of dollars. Zynga (founded in 2007) and Groupon (founded in 2008) squeaked out minuscule full-year profits in 2017, but again after years of massive losses. Grubhub, the food delivery company, turns a modest profit, but Grubhub comprises two merged companies which were founded in 1999 and 2004, respectively—meaning it is actually older than Facebook.
The tech industry used to produce big, money-gushing companies all the time. But in the past ten or fifteen years, something has gone wrong. In that time period, Silicon Valley has become obsessed with unicorns: private companies that grow like crazy and achieve valuations of more than $1 billion. The start-up term unicorn was coined in 2013, but the hunt for them began long before that, back in the early 2000s, when the second dotcom boom began. In the current boom, VCs have become very good at creating unicorns. Today there are hundreds of them. Some have gone public, and some remain private. Many provide really terrific services. But as magical as these companies may be, there’s one thing unicorns seem unable to do—turn a profit.
Tesla, Spotify, Dropbox, Box, Snap, Square, Workday, Cloudera, Okta, Blue Apron, Roku, MongoDB, Redfin, Yext, Forescout, Docusign, Smartsheet—they’re all publicly traded, and they all lose money, and in some cases a lot of it, sometimes for years and years, long after they go public. Other unicorns like Uber, Lyft, Airbnb, Slack, Pinterest, WeWork, Vice Media, Magic Leap, Bloom Energy, and Postmates remain privately held, but reportedly don’t turn a profit. As I write this, a tech start-up called Domo is attempting to offer shares to the public even though the company lost $360 million over the past two years, on sales of just $183 million, meaning Domo loses two dollars for every dollar it took in.
This is madness. It’s not sustainable. But what if we could come up with something else?
That’s what four women tech entrepreneurs—Jennifer Brandel, Astrid Scholz, Aniyia Williams, and Mara Zepeda—began to wonder in 2017. Since the tech world seems to like metaphors, the four women proposed a new one. Instead of building unicorns, why not be more like zebras? In an essay on Medium, titled “Zebras Fix What Unicorns Break,” they explained the analogy. Zebras are herd animals and band together to help each other. Zebras might not run as fast as unicorns, but they have stamina and are built for the long haul. Just as zebras are black and white, a zebra company would do two things at the same time: turn a profit and improve society. They launched an organization, Zebras Unite, and invited like-minded people to join.
Sure, the metaphor is a bit of a stretch. But you get the idea. As Zepeda explained to me, she and her co-authors want to build companies that deliver sustainable prosperity, not flashy start-ups that grow fast, lose money, and fizzle out. They want to build companies that cooperate rather than compete, and “deliver value to users, not extract value from them,” she wrote.
That sounds incredibly sane and healthy. The problem is, VCs won’t fund companies like that. They still want the unicorns and the rapid growth. The unicorn model does not create sustainable, healthy companies—but it does deliver to investors the biggest possible return in the shortest possible time. Silicon Valley VCs actually have more incentive to create bad companies than good ones. If you’re a woman entrepreneur pitching a company that will grow slowly, turn a profit, and create a sustainable business, nobody on Sand Hill Road wants to take a meeting with you.
Since that’s the case, the founders of Zebras Unite said, let’s opt out and find a new way to fund the companies we want to build. “We need new corporate structures,” Zepeda tells me in an interview. One model she admires is the “steward-owned” company, where shareholders are actively involved with the organization as management or employees. The business model is actually an old one, pioneered by Bosch and Zeiss. But now a German organization, Purpose Network, and its affiliated investment group, Purpose Ventures, are exploring ways to apply this model to start-ups and to create companies that “maximize purpose instead of profit,” according to their website.
As for the zebras, so far more than four thousand people have expressed interest in joining Zebras Unite, and one thousand have become active community members. In November 2017, Zebras Unite held a conference in Portland, Oregon, called DazzleCon (“dazzle” is the actual name for a herd of zebras) which drew two hundred attendees. Zepeda tells me the Zebra movement is expanding, and now has more than twenty international chapters.
To be sure, Team Zebra is tiny compared to Team Unicorn. The VC industry pumped nearly $150 billion into start-ups worldwide in 2017 and is on track to invest even more in 2018, according to the National Venture Capital Association. Big-shot VCs would probably say the folks on Team Zebra are hopelessly naïve—if they even thought about them at all. Nevertheless, the fact that Team Zebra even exists seems like a sign that Silicon Valley might be starting to wake up from its long fever dream.
Meanwhile others have started pushing for reform, including some who possess a lot of clout. Paul Tudor Jones, a billionaire hedge fund manager, has little in common with the Birkenstock-wearing types who showed up at DazzleCon, yet he too thinks the corporate world is in terrible danger and needs a massive overhaul. The problem is not just the way companies are structured—it’s the overall economic system. “Capitalism may need modernizing,” Jones told CNBC in June 2018. For half a century, corporate America has been ruled by the gospel of shareholder capitalism, as proclaimed by Milton Friedman. But that model, which puts investor returns above all else, has run out of gas, Jones said. Jones runs a foundation, Just Capital, that focuses on social-impact investing and measures the values of companies not just on profits but on how well they treat their workers.
Here’s the thing. When a billionaire hedge fund guy starts sounding the alarm about income inequality, and saying that capitalism itself needs to be reinvented—well, I suggest we should pay attention.
A good start would be to push successful companies to be better citizens. In Silicon Valley, city officials in Mountain View (home to Google) and Cupertino (home to Apple) say they might start taxing big companies on a per-employee basis, to mitigate problems like traffic congestion and the lack of affordable housing. The Californians were inspired by city officials in Seattle, who passed a measure that would tax big companies $275 per employee to help address the city’s growing homeless population. Unfortunately, Seattle later canceled the tax after Amazon and other employers howled. (Amazon, the biggest employer in Seattle, would have paid $12 million per year, which is a pittance, considering the company generates billions of dollars in profit each year, and that its founder and CEO, Jeff Bezos, is worth $140 billion.)
If public officials can’t force companies to help out, employees might. Workers in Silicon Valley are making noise about unions, in part to push companies to behave more ethically. “We want people to be afraid of the political power of their employees,” Maciej Ceglowski, head of an activist group called Tech Solidarity, told Quartz in 2017. In 2018, four thousand Google employees protested the company’s involvement in a military drone program, and a dozen resigned; Google agreed not to renew the contract. Employees at Microsoft and Amazon also have organized protests, demanding that their employers stop providing technology to U.S. Immigration and Customs Enforcement.
There are other hopeful signs for worker welfare. In France, the former CEO and other top executives of France Telecom, who dehumanized workers and drove them to suicide, will be forced to stand trial for their actions. If nothing else, the trial may encourage companies to curb abusive, exploitative practices and treat workers with more respect. In California, the founder of Theranos, Elizabeth Holmes, has been indicted for fraud, after the health-care unicorn failed to produce a promised revolutionary blood-testing technology. The case could serve to curb some of the excesses of unicorn culture, including its penchant for hype and its tendency to overlook aggressive rule-bending and corner-cutting.
The push to make companies better reaches beyond Silicon Valley. Sara Holoubek, founder of a New York City consulting firm called Luminary Labs, promotes a concept she calls Human Company Design. In Oakland, consultants at Great Place to Work and their colleagues at Great Place to Work offices around the world keep promoting the virtues of investing in employees and providing good jobs with long-term security.
Two years ago I set out on this journey to find out how work had gone wrong and why so many people were miserable. The short answer seems to be that a half century of shareholder capitalism has led companies to treat employees badly—to steal their pensions, cut their pay, and treat them like disposable widgets. In the last twenty-five years, in the age of the Internet, the damage has accelerated. Silicon Valley has taken a flawed philosophy and pushed it to new extremes.
Maybe the pendulum will start to swing back in the other direction. With this book I hope to give the pendulum a little nudge. I’ve been surprised and glad to find that there are so many people who reject shareholder capitalism and the new compact, and who, like Yvon Chouinard at Patagonia, have discovered that even in the age of the Internet, some old-fashioned commonsense ideas actually still work. To be sure, these people remain in the minority, but they’re out there. They’re starting new companies. They’re building a new kind of capitalism.
Let’s hope their ranks keep growing.