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How to build a startup unicorn: the six principles for a $1B company

Friday, August 27, 2021

Startups with a value of $ 1 billion or more are no longer an extremely rare occurrence, we are going to tell you how build a “unicorn”.

Startup Jedi

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SpaceX, BlaBlaBlaCar, Facebook, Airbnb: all these companies unite one word —  “unicorn”. The name of the mythical beast is given to startups with a market value of more than $1 billion. As of August 2021, there are over 700 unicorn companies in the world. Despite the pandemic, venture capital funds are booming, investing huge amounts in growing companies. Unicorns are no longer a dream, becoming an attainable goal. We’re figuring out how to go the hard way from an MVP system to a billionaire startup.

Which startup can be considered a unicorn? 

The term “unicorn” first appeared in a 2013 essay by Cowboy Ventures venture entrepreneur Eileen Lee. The entrepreneur used this term to refer to companies whose capitalization had reached $1 billion in five years. Today such a market value does not surprise many people: in the list of “unicorns” “decacorns” —  startups worth more than $10 billion (Uber, ByteDance) are increasingly declared, and the most horny from startups —  “hectocorus” —  are valued at more than $100 billion (Ant Financial).

Сonsidering the sectors of the economy in which "unicorns" grow most frequently, most of these companies will be in fintech (17%). It is followed by: software and services for the Internet (16%), e-commerce (12%), as well as artificial intelligence (8%). By geographical distribution, most of the "unicorns" are located in the United States (51%), followed by China (20%), India (5%) and the EU (4%).

Reasons for the failure of startups

Startups appear every year, but only a few of these thousands become profitable and grow into "unicorns". According to Eileen Lee, the probability of creating a company that will grow into a unicorn is only 0.00006%.

Why do companies fail to grow into “unicorns”? Often there are a number of reasons for this, and fauna almost always point to several factors. According to the statistics of CBSInsights, finance is in first place: “Money has run out / has failed to attract new capital” (38%). Then —  “no need on the market” (35%), “loss to competitors” —  (20%), “imperfect business model” —  (19%) and “normative / legal problems” —  (18%).

The technology of growing a unicorn: a fairy tale becomes a practice

Many unicorn startups have common features. Let's analyze the composition of such companies.

  • Innovative and powerful product

Before creating a unicorn, choose a prospective, fast-growing niche. Unicorns are “blowing up” the market by offering simpler and cheaper alternatives to existing products. Accessibility attracts more and more customers, and gradually the company becomes a market or industry leader.

An example of a startup that has blown up the TV sector is the Netflix video service, which rethinks the cinema industry by offering budget subscriptions to quality video content. Netflix is a personalized recommendation based on artificial intelligence. The service offers content, taking into account user preferences, browsing history, without using a rating and feedback system. In addition, Netflix produces the highest level of content and also buys distribution rights for world novelties. 

  • Accessibility and clarity for ordinary consumers
More than 60% of unicorns work according to the b2c (business-consumer) business model, i.e. they provide accessible products and services to ordinary consumers. To create the products that customers need, unicorn founders study the “pains” of the target audience and offer simple solutions to these problems with the help of their product. The main rule here is that the problems should be real, not fictitious.

Let's recall the history of the creation of the Zoom service. The founder of the startup, Eric Yuan, while still a student, spent 10 hours on the train for the sake of meeting his beloved. This inconvenience pushed him to introduce innovations in video telephony. 

It is also essential to remember that after solving the initial problem of the client, you do not need to stop there: continue to improve your product by adding features that users need. 

Customer care is also the intuitive design of your product, which will allow you to receive a product or service very quickly. The easier and more pleasant it is to use your product, the more people will want to do it. 

  • Successful MVP in the demo of the future unicorn

The point of MVP is to test your business idea: how catching  is your product to potential customers? If you understand that there is no interest as such, test another idea. For this reason, MVP is best done quickly and for a minimum of money. Many fauna stop at the MVP stage, trying to make a nearly finished product immediately: in the end, there is a high probability of throwing money away on a non-viable project. Test and correct MVP based on feedback from your target audience.

Take Airbnb as an example: to test the hypothesis that certain people will be willing to pay for living in someone's house instead of a hotel, the founders created a simple website with a description of their apartment. It was crucial for them to check whether people would want to register on such a site. The hypothesis worked. The main lesson: think big, but start small — quickly test your idea, even if not in an ideal version.

  • Dream Team: shared values

In the first stages of starting a startup, the team often comes with people who are willing to work with a bare enthusiasm —  if they share your values, then you are on the way. Most often these employees are the backbone of the future company. However, as your startup grows, pay attention to the skills and competencies of the candidates.

Common values, an understanding of the company’s development strategy, strength and cohesion, and dedication are the key to a good team ready to achieve its goals. 

  • Investment and smart partnership

Lack of funds, as we mentioned above, most often leads a startup to failure. It is almost impossible to pay all the expenses for the company out of your own pocket, so the basis of any successful business is a network. A well-established network of contacts allows you to quickly find suitable partners and investors, as well as customers. 

Do not think of funding as donations or loans — this is a smart partnership, a business relationship. You need to convince investors that you know the market inside and out and will be able to beat your competitors.

  • Growth, not profit

To scale your company like a unicorn, you must set clear growth goals and define your company's vision. Create a scaling plan by identifying promising sales channels and use key performance indicators that will help you stay on track.

Each “unicorn” has its own way: take risks and act to get into those cherished 0.00006% of companies!

 

27 Aug 2021

 

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