Launching a unicorn startup. It’s the stuff of legends.
When venture capitalist, Aileen Lee, coined the term back in 2013 — referring to a private company valued at or over $1 billion — these startups were a statistical rarity. Something akin to the mythical creature. On her first count, it was a small herd of 39 startups, but fast forward six years and there’s a new unicorn born every four days. Talk about a funding fantasia.
And while it might seem like these startups emerged from the millions of entrepreneurs in some Darwinian-like fashion, becoming a household name like Uber or Airbnb is no easy feat. Many entrepreneurs dare to dream, but often fail. In fact, 50% of U.S. companies flounder after five years and over 70% after the ten-year mark, which leaves the question of “how do you join the herd?”
While there’s no one size fits all answer, getting the lay of the land (so to speak) can be your best friend. To help entrepreneurs better understand the trends and happenings within unicornland, Embroker put together this interactive guide that dives in the unicorn ecosystem, including factors like geographical placement, industry breakdown and lessons from founders that you can apply to your startup — all based on the data.
Read on to learn some more about the formula these high-flying companies apply to earn their place in rarified air within their respective industries.
Develop a meaningful, ownable value proposition.
First and foremost, entrepreneurs (of all size aspirations) need to establish a powerful value proposition that not only differentiates their company from marketplace competitors, but also makes it easy for their target customer base to understand.
Simply put, a value proposition explains what your company does. It is the offer a person, entity, or company makes to deliver a helpful good or service that would otherwise cost more than the fair value being exchanged — essentially, it’s the benefit you provide to the people who pay for your product or service. And every brand should have a benefit that the company believes is important to the marketplace and scalable to the size it thinks it can become.
The benefit should be meaningful to justify why people should part with their money, or it should solve a problem people don't know they have. For example, a couple of decades people just bought expensive hotel room on vacation, they didn’t know that “Airbnb-ing” a personal home or apartment could be more cost effective for group vacation with friends or family.
Know when to pivot.
In other words, be ready to relentlessly evolve your value proposition.
A pivot is essentially a shift in business strategy to test a new approach regarding a startup’s business model or product after receiving direct or indirect feedback. And because the law of the marketplace is that companies must adapt or face extinction, nearly all successful startups find themselves pivoting at one point or another.
Many successful startups launched with a different business model, and when they ran into trouble they pivoted to something new. Take Instagram for example, when they launched they were initially a location-based check-in service and pivoted to becoming the largest photo-based social platform in the world.
In this case, your value proposition and offerings should grow and expand to reflect both internal and external developments. Being receptive to feedback, understanding industry trends, innovating and staying ahead of the game are all your best friends.
Choose Your Industry Wisely
When you break down leading unicorns, there’s a pretty clear pattern in which industries dominate the herd — the bulk existing in four different spaces: fintech (12% of all unicorns), eCommerce (11%), internet software (9%) and on-demand (6%).
Now, this doesn't mean the only valuable idea exists within one of these four categories. It just means that many investors focus on them looking for a big opportunity. Startups have flourished in a variety of industries ranging from apparel and entertainment to HR tech and genomics.
To help you bet on the right horse, there are some important industry factors to consider before building your startup.
● Demand - Most importantly there has to be a need or demand for your product of service. And ask yourself if you’d want to use this product or service. Does it help solve for a problem you didn’t know you had? Understanding if there’s a demand for your idea can be difficult. Fortunately, there are many ways to gather free and valuable information on your target market, their needs, wishes, and priorities. This can be useful in the early stages to tailoring your offers to their needs and capture a larger market share in the first few years.
● Your expertise - First consider what you’re good at. There’s no point in creating a startup in the fintech space if you are not good with money or don’t enjoy working with it. At the same time, if you are good at solving problems and filling a gap where there's a need, you might consider something in the on-demand space.
● Competitor research - Research isn’t just for establishing if there’s a demand for your idea. Competitor research can help you create your unique selling proposition and stand out from the crowd. This can also shed light on niches your current competitors are serving (or not serving), and what’s missing from their offerings, you can find a gap in the market and an easy way of penetration.
● Projected industry growth - Do your research and be aware of industry statistics and trends. Depending on what industry you’re interested in, you might choose to read white papers and research documents, so you can identify the threats and opportunities.
● Technologies - Utilize supporting technologies to help your business run smoother. Because technology is ever evolving, there might be tools that will reduce your product development and research phase, you can turn a profit much quicker. On the other hand, maybe you have an idea that helps fill a gap within this space.
● Regulatory environment - You don’t want to invest money in something that is likely to get banned, so considering current marketplace regulation is extremely important. Are there any regulations might affect your idea/product/offering and how these are likely to change in the future? If regulations are likely to change in your favor in the future, this could be the right time to get on board.
● Scalability - No one wants to spend all day working until they retire, so it’s important to understand how scalable your business idea is. Can you create value you can sell in the form of a franchise, solution, or get people to become affiliates in your business, so you don’t have to take care of all the business processes yourself?
One of the most important factors to consider is the industry in which you startup will reside. This is a decision not to be taken lightly, and it is important that you focus on the long-term, or you might enjoy success for a few years followed by a decline.
In 2013, it would have been unlikely to find many unicorns with headquarters outside the U.S. Fast forward nearly a decade and things look a bit different. While 44% of unicorns are still based in the U.S., 37% have founding headquarters in China and another 19% are spread throughout the rest of the globe, with countries like India, Great Britain and Brazil on the rise for unicorn hubs.
Regardless of which country you choose to be the birthplace of your startups, you’ll want to consider factors on a region and local level. In other words, situating yourself in a known tech hub can be a helpful component to acquiring venture capital. After all, there’s a reason why many successful startups have set up shop next to Wall Street bulls, in innovative hotbeds like Silicon Valley and tech hubs like Boston and Seattle. This is where the majority of big checks are written.
Founding Team Size
Then there’s the size of your founding team. Deciding if you’ll go at your business venture solo, take on a co-founder or establish a founding team are all important factors to consider. Unfortunately, there’s no magic number for how small or large the size of a founding team should be, but when you take a look at the top 23 leading unicorns, you’ll notice they’re all well under 10 founders.
It's a common thought that two (or more) heads are better than one, but as disagreement, stress and conflicts inevitably come with the startup journey, these issues can be more easily resolved with a smaller founding team. On the flipside, successful startups often require a variety of skills that few people possess on their own, and having more than two founders can help make the representation of that entire skillset more complete—startups in today’s time are typically run by multiple founders. Regardless of what skill sets are brought to the table, founders and co-founders should all share the same vision.
Final Thoughts on Unicorn Startups
This article is only a small insight into unicorn startups. To learn more about the time it takes to become a unicorn, how to navigate the ecosystem and tips from startup founders like Airbnb’s Brian Chesky and Adi Tatarko of Houzz, check out this interactive guide to unicorn startups.
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