Jim Duffy: No guarantee of success in technology revolution

There are, reportedly, more than 200 unicorns start-ups worth $1bn or more globally but we must never forget that they are mythical beasts, so not all sightings will be genuine

The technology revolution is not something that will happen but is taking place right now. Once upon a time, when I was at school, it was fashionable to become a doctor, an accountant or a lawyer – it is now cool to be a techie. It’s a pretty male-oriented sector, a bit like law used to be. I recall the university application form and the number of As and Bs needed to get into the so-called “top courses”, such as law or medicine. Yet today, these courses are being shunned by those high flyers who opt to enter the world of tech. Times are changing.

Across the globe, tech is a huge multi-billion-dollar industry. The new heroes of business are not those who have built corporations that employ thousands of people, but those who have created a piece of tech that has attracted a ton of private equity investment. Throughout the globe – and I’ve visited many in India, the US and Europe – tech accelerators and incubators are springing up, luring techies with the vision of becoming a unicorn (for non-techies, a unicorn company is a start-up valued at over $1 billion). According to VentureBeat, there were 229 unicorns as of January 2016. The largest unicorns include Uber, Xiaomi, Airbnb, Snapchat, Dropbox and Pinterest. Some of these names you will know and use. But, where is all this leading us? It all sounds pretty positive – I use Airbnb weekly as I travel the UK as it provides a great alternative to a bog standard hotel.

We all probably understand the housing bubble and I see that the Bank of England is getting its knickers in a twist over buy to let, as lending levels are dangerously close to that of the 2008 crash. That’s good – we’ve noted something, are monitoring it and are putting a fix in place. The bank is learning from the past and putting the brakes on. I’m not sure the global economy could withstand another big shock so soon. In the land of tech, the same thing happened in the early 1990’s. The dotcom bubble exploded out of a combination of greed; speculative style investing (based on crazy gut feel led valuation); the huge availability of venture capital cash for startups; and the failure of many of these companies to monetise and, ultimately, turn a profit. Money poured into these over-valued unicorns of the day and caution was abandoned as investors suffered the FOMO (Fear Of Missing Out) investment syndrome. This is exactly what is happening again.

Businesses are not built overnight. Skyscanner, an incredible and successful Scottish unicorn, has being going for more than 12 years – generating healthy revenues and profits. However, the myth is that it is only a few years old – a fable created by dysfunctional masterclasses at techie meetups, so-called tech “gurus”, investors and incubators that perpetuate a nonsense based on hype, ego and greed. Herein lays the heart of the tech problem that we are creating for ourselves, not just in this country, but globally. People are jumping on the start-up bandwagon, believing that by creating a fancy app or solution to a problem that… well, really isn’t a problem, they then can get rich quick, stick on a pair of designer jeans and a hoodie and talk at tech conferences on their “journey”. Add to this investors (new incumbents), who are motivated only by money, and we have recipe for disaster. To create a fallacy that we can create 20 unicorns overnight is to do what the Pied Piper did in Hamelin. And yes, that also was a fairytale. The lessons from the dotcom and housing bubbles are plain to see. Building value on valuation only is flawed economics and only ends in disappointment. How many techies out there, dreaming of unicorn status within three to five years, are going to be deeply disappointed and disillusioned? Perhaps they should have become a doctor after all. I would argue that “unicorn” will become a vanity metric that smart investors will eventually steer clear of – opting for more grounded investments that have solid cash foundations. Instead of aiming for a valuation, can we not focus on building great people who can build great businesses?

Already in the US, investors are becoming nervous and serious questions are being asked about the true valuations of unicorn companies. Bill Gates has expressed his worry at over enthusiastic valuations taking place in Silicon Valley. At the seat and Mecca of tech, The Valley, alarm bells are ringing. So, what does that signal for us here in the UK? I seem to recall someone telling me that if America sneezes, we catch a cold.

There is plenty of money out these for the right entrepreneur who want to create a brilliant company. But that takes time, sweat, and a realism that it will be at least five years before things truly start to happen. Simply rocking up at an incubator, accelerator or co-working space and talking the talk will not be sustainable. There is only so much tech we, Joe public, want and can cope with at any one time. If it all comes too fast, we switch off. Building tech for the right reason, to enhance people’s lives, is admirable. Building tech for the sake of it and to get rich quick is questionable. There is a duty on investors also to be smart, ethical and long term sighted.

Let’s not get carried down that road by the Pied Piper of Tech