Stop Benchmarking Unicorns and Giants

by Jamie Flinchbaugh on 05-14-24

Unicorns are companies that reach a $1B valuation while still being privately held. Giants can often be summarized originally as FAANG (Facebook, Amazon, Apple, Netflix, and Google) and now MAMAA (Meta, Apple, Microsoft, Amazon, and Alphabet). These companies are often referenced as examples to follow. Learn from their success. After all, who doesn’t want to be worth $1 Trillion? Books, consultants, and conference keynotes all promise to help you unlock the secrets to be more like these companies.

This is often the wrong pursuit.

The first failure mode of this pursuit is that the unique attributes of these companies enable them to take unique actions and strategies. This is like learning to play center in basketball from Victor Wembanyama. Unless you are also 7 foot 4 inches tall, you are unlikely to be able to copy his technique. It’s quite difficult to copy Amazon’s distribution strategy unless you also have fulfillment centers miles away from the majority of the population.

Furthermore, the things that got them to that position are very often different from the things that keep them there. There might be some things that are always true, but the stories told of the growth period often involve a little too much revisionist history to be incredibly useful.

Another critical reason to be careful learning from the giants is that correlation does not equal causation. Is the thing you are copying the reason for the success, or something that simply also happens to be present?

Google was famous for allowing 20% of time to be invested in anything people wanted. Was that why they were successful? Or was that a waste of resources that was simply covered up due to success elsewhere? We can never actually know for certain. Because these companies are so unique, there is no chance of having a true control group for comparison.

This doesn’t mean that we can’t learn from other companies. However, instead of using it as a shortcut, we need our critical thinking through the whole process.

How is the example company like us, and how are they different?

How is the trick / tip / technique / strategy they are using impacting their success?

What else must be true for that to be effective?

Why does it work?

Why might it fail?

Benchmarking can be effective, but benchmark the right companies for the right reasons and most importantly, with the right thinking.