New | Why boring old companies are sometimes the best innovators

There’s no shortage of innovative and impressive startups in Silicon Valley. Equally impressive is the number of unicorns—startups that are valued at US$1 billion or greater. Fortune magazine recently counted more than 170 of the mythical creatures, with an average of one unicorn born every week during 2015. Back in 2009, there were just four companies that fit the name.

No less noticeable are ones that abruptly flamed out or being embroiled in crises. Zenefits, an HR software company, once valued at a whopping US$4.5 billion, is now struggling to recover from a regulatory scandal. It was found cheating on the state’s online broker license course. The personal genomics and biotechnology company 23andMe, once valued at US$1.1 billion for heralding the future of home DNA testing, came crushing down in the wake of a regulatory shutdown. Even Snapchat, hailed as the most popular social app among teens, saw its value marked down by 25%.

To be sure, the technology sector is unlikely to experience a meltdown as severe as the housing crisis of 2008. But without a sustainable stream of profits, or even revenues in some cases, many startups obviously have trouble justifying their lofty valuations. Growing too quickly can produce just as spectacular a failure as growing too slowly. Which begs the question: How to avoid being consumed by impossible expectations?

Enter Tencent. Founded in November 1998, the company has since grown into China’s largest and most used internet service portal, and in the process, has also become the world’s largest game company. It owns Riot Games that published League of Legends, competing fiercely with household names like Electronic Arts and Nintendo. Except Tencent wasn’t just about gaming.

Back when desktop computers still reigned supreme, Tencent dominated online instant messaging with QQ service (similar to ICQ). With the rise of smartphones and mobile computing, QQ had failed to capture new users with its mobile application. Top management swiftly established a new team in Guangdong, away from the Shenzhen headquarters, and tasked a small group of engineers to imagine a different social media platform, giving them the carte blanche to cannibalise existing QQ. That was the beginning of WeChat.