Somewhere in the animal kingdom...

Photographer: Haruyoshi Yamaguchi/Bloomberg

Tech Unicorn Evernote Needs to Turn Into a Cockroach

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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The news last week that Evernote was cutting staff and closing offices gave me -- and probably lots of other people -- a fright. The note-taking app is a big part of how I keep track of my work and my life. If it were ever to go away…well, I’d rather not think about that.

On the face of it, there’s nothing all that alarming about what new Chief Executive Officer Chris O’Neill is doing. As he wrote when announcing the cutbacks:

Evernote’s strength is in its core: notes, sync, and search. That’s where we’re going to focus.

That’s all I ever use, so that sounds great. I’m also a paid “premium” subscriber, and O’Neill made clear that we premium types, plus the 20,000 corporate clients, are what Evernote is going to be all about. So, really, what is there to complain about?

Well, just that one of the first “unicorn” startups, with a valuation that hit $1 billion in a funding round way back in May 2012, is no longer looking like a magical creature. Here’s Eugene Kim in Business Insider:

Depending on where you stand, Evernote is either a sinking ship or a maturing company going through a normal transition cycle. But most people we spoke to seem to agree that the company has failed to take advantage of its red-hot growth and make enough money from much of its huge user base -- and is starting to show early signs of being an ailing unicorn.

“Ailing unicorn” sounds bad. It implies that the next step could be dead unicorn. But Evernote still appears to be a growing company, with millions of users who pay it $25 or $45 a year to help them organize their lives. It’s doubtful anyone would think it was ailing if it hadn’t been a unicorn in the first place.

And that, really, is the story. In the early days money was often tight at Evernote. When an investor backed out in the middle of the 2008 financial crisis, co-founder and CEO Phil Libin was on the verge of giving up and shutting the company down until an impassioned Evernote user from Sweden called up out of the blue and, after a few days of Skype conversations, wired the company the half-million dollars it needed to keep going.

By 2012, though, institutional investors were throwing more money at Evernote than it could use. When it raised $70 million that May, Libin wrote that “we took this financing not because we need the money to fund operations, but because we see building our financial infrastructure to be a crucial component of remaining an innovative and durable company.” Six months later it raised another $85 million. Libin’s take: “It’s nice to have this extra peace of mind, even if we don’t strictly need it.”

Since then, as Kim tells it, the company has spent that money on lots and lots of new endeavors, some of which have worked. It has kept growing, but not as spectacularly as it appeared that it might back in 2012. So now it’s battening down and focusing on the activities that actually bring in money.  An initial public offering is still the goal, but Libin told the Wall Street Journal that it’s a year or two off and that the company will probably have to raise more capital before it’s ready for an IPO. O’Neill, a veteran Google executive, took over as CEO in July. Libin has stayed on as executive chairman, but also become a partner at a venture capital firm.

Anyway, maybe it will all work out OK. Evernote remains a company with a cool product and loyal customers. But you have to wonder whether things might have worked out even better without the unicorn frenzy of the past few years. Consider Evernote’s analog counterpart -- and sometime partner -- Italian stationery maker Moleskine. Inspired by a passage in the travel writer Bruce Chatwin’s “The Songlines” about a defunct Parisian publisher of bound writing notebooks, the company was founded in 1997 and went public on the Milan stock exchange in 2013. It’s never been a unicorn, and it hasn’t been a great stock, but it has a market capitalization of $377 million (336 million euros) and steadily rising revenue and earnings. It paid its first dividend to shareholders this year. Nobody would think to call it “ailing.”

Last week Caterina Fake, who co-founded photo-sharing site Flickr amid the dot-com bust of the early 2000s, wrote that “a plague is coming to kill off the unicorns.” Funding will dry up, and the tech/Internet winners of the near future will instead be “cockroaches.” Actual cockroaches, she continued, can go six weeks without food and “can subsist on grease, hair or glue.” Their corporate counterparts can get by without big investor infusions and fancy offices. Fake sees this as mostly a positive thing: “Constraints inspire creativity.”

Now, I’m sure $85-million investments occasionally inspire creativity too. It isn't as if the entire unicorn investment boom has been a waste.  But if cockroach time is here, I’m really hoping that the people to whom I’ve outsourced most of my memory are able to make the switch from unicorn food to grease, hair and glue.

  1. Actually, an existing Milanese design and publishing firm, Modo & Modo, began producing the Moleskine notebooks in 1997. In 2006 a private equity firm bought Modo & Modo, rechristened it Moleskine and started building it into a global brand.

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