A few years ago, anthropologists identified Energy Efficiency as the main reason for the evolution to upright walking. The study suggested that humans walking on two legs only used one-quarter of the energy than that of the chimpanzees who knuckle-walked on four legs, providing support for the hypothesis that human bipedalism evolved due to the fact that it used less energy than walking with four legs. Bipedalism was a “disruptive technology” (evolution strategy) that human ancestors adopted to out-survive and out-perform other species in a food/energy scarce world.

This explains humankind’s earliest hunting technique: It is called Persistence Hunting. Since humans are more energy efficient in running with two legs, our ancestors hunted basically by running African antelopes to heat exhaustion. This technique is still used by modern day Bushmen in Southern Africa, who often run after a kudu antelope until it collapses. Though personally, I would much prefer to use my .270.

According to fossil records, on any continents reached by these two-legged humans, the large-sized, four-legged mammals were wiped out quickly afterwards.  (Think of America’s frontiersmen vs. 60 million bison)

Capital inefficient corporations are like those large-sized four-legged mammals; they use more energy to run the same distance. Consequently, they are likely to be replaced by more capital efficient startups. Water always flows through the path of least friction to reach the sea; capital will seek out the most efficient organizations for higher return. This is the law of nature and the law of business. So why are many companies still walking on four legs?

As a company raises capital for growth, the capital efficiency gets lower compared with startup days --- in a sense, that’s somewhat unavoidable. However, many growth-stage companies prematurely sacrifice capital efficiency and end up not getting the growth they expected, but have already acquired the cost structure associated with large businesses. That’s a recipe for failure.

Venture Capitalist Firas Raouf of OpenView Partners advocates the importance of a capital efficient distribution model in a growth stage company. He points out the contradiction between growth and capital efficiency and emphasizes not to solve operational issues with money. So, it’s crucial to balance capital efficiency with business growth. For companies who have just obtained institutional funding, it’s even more so, since now they have money to make mistakes.

The ideal process should be: first build an efficient engine, then add more fuel to achieve growth, not add more fuel to an inefficient engine, then expect it to run more efficiently somehow. Any growth achieved under an inefficient business model is not going to last. Like those extinct large four-legged mammals, they used to be abundant, but now they are gone. The human species achieved Growth after all; there are 7 billion of us today.

Is your company ready to walk on two legs?

By Isaac Shi
December 1, 2011