From Startup to Unicorn in 5 Steps


Mark Zuckerberg in disguise? In today's world of startups, there are three ultimate outcomes: failure, modest success and, very rarely, spectacular success. In our last article we covered the meteoric rise of startup "unicorns" - mythical creatures of a different kind from the ones in fairytales. Unicorn is venture capital slang for a startup with a valuation of $1 billion or more. These are the pin-ups of the seemingly endless wave of innovative tech companies to close significant funding rounds in recent times.

But just how rare is this success? A typical venture capitalist meets with approximately 1,000 young companies ever year and funds around two of them. For every 10,000 startups that receive VC funding, only one becomes a unicorn. In short, the chances of achieving startup success at the unicorn level are about one in five million. Most of the other companies just run out of cash, while a handful are bought for substantial - but not spectacular - sums.

Startup unicorn overview by sector (as of 2014)

A deciding factor between (unicorn-like) success and failure is the entrepreneur's ability to find growth opportunities and manage the startup's resources in order to capture a market share sufficient to reach $100 million in revenue. Judging by recent examples - Uber, Snapchat, etc. - this seems to be a prerequisite for any startup hoping to go public.

Whether that startup actually goes on to make this revenue is a moot point. At least until this tech bubble of ours finally bursts. If you're startup is to be the next unicorn you'll need to maximise your growth opportunities. Here are five startup growth tips to help you reach that $1 billion plus valuation.

1) Solve a familiar problem

Why did you start your company? To boost your odds of success, aim your startup at a problem that you deeply want to solve. Your startup should be based on a problem that you know well and that matters to you. This seems obvious, but without personal drive and ambition your startup is heading for failure regardless of how innovative your tech may be.

For example, you may have spent years coping with the challenges of caring for your elderly parents. This experience meant you identified a number of problems that, if solved, would reduce the impact of caring on the younger generation. Focus on the most significant problems, and brainstorm ways to solve these with your startup. Also consider how and why you're startup will offer a better solution than others, and determine the size of the market opportunity if your solution works.

2) Test your assumptions quickly

The customer is always right, so they say. As an entrepreneur it's crucial to be responsive to your customer's wants and needs. Sometimes their feedback can be surprising. PayPal co-founder Max Levchin, for example, would have continued focusing on building an operating system for a digital wallet instead an electronic currency for eBay if he hadn't listened to the persistent demands of PayPal's early users.

Simple A/B testing processYou can put your startup on the right track by doing so-called A/B testing. This helps you to efficiently figure out which customer segments will want your product and find groups of potential customers within that segment. Take a couple of your best ideas from step one and develop a clear description of your product with visuals. Show one product to a potential customer group, and a second product to another. Ask each group whether they would buy the product, how much they would pay, and how frequently they would buy it. Repeat this process until you know which features of a product features result in the most positive customer response.

3) Build and test a prototype

The next step is to create a prototype of your product or service that includes all the features requested by your customers. Don't stop improving on your prototype after receiving the first round of positive feedback from customers. It's not enough for potential customers to find your product interesting in order to part with their hard-earned cash. That's not how sales works. Wait until potential customers start to convey a sense of urgency - "I need this product now. How soon can you deliver it?" - before you move on from your prototype.

4) Sell to your initial market

If you've got this far you probably have a product or service that's wanted by the market. Unfortunately, that's not always enough. You'll need to build a sales and marketing machine in order to break the $25 million threshold and saturate your home market. A winning sales and marketing organisation must be geared to fit the needs of the customer. Selling to individual consumers directly requires effective advertising, for example. These days that means mobile and social media marketing. At the other end of the spectrum, selling to large companies will involve hiring an experienced sales force that can close corporate deals effectively.

5) Expand globally

You are unlikely to reach $100 million in sales in your initial market. This means you'll have to expand internationally, which requires a careful strategy. A potential market should be worth at least $1 billion in revenues before it grabs your attention. It's crucial to conduct sufficient customer research in order to know whether you can gain a sizeable share of that market opportunity.

Many European companies initially expand to the U.S. due to similar business cultures and large market size - and vice versa. International expansion often requires the help of a local partner who shares your vision and has the right skills and networks to help you achieve your goals. Follow these five startup growth tips and your startup still has a shot of becoming the next unicorn to gallop triumphantly through the tech world.

Source: CB Insights

Now that your startup is geared for success, learn how to convince investors about its potential using our 10 key investor metrics.