Every entrepreneur dreams that their business will be one of the ones that make it big. For a few very lucky start-up founders, this dream has become a reality and their ventures have truly hit the big leagues by earning a coveted spot in the so-called Unicorn Club. This is a very small number of privately held start-ups that are now valued at a billion dollars or more. Many of the big names will be very familiar to you, with household names like Uber, Airbnb, Pinterest, and Reddit all part of this exclusive club.
In this article, we’re going to look at the secrets to billion dollar startup success. What do these companies have in common – and what don’t they? How can another business replicate their success? Keep reading to find out…
**What is a Unicorn Startup?**
A unicorn is any privately held startup that’s valued at a billion dollars or more by venture capitalists. This term was coined by Aileen Lee, the founder of Cowboy Ventures, back in 2013. She gave the companies this name due to the statistical improbability of a startup becoming a unicorn; at the time she estimated that only 1 in 1,538 venture backed companies would reach these lofty heights. With 90% of tech startups predicted to fail, to hit a billion dollar valuation is a truly extraordinary feat.
It’s worth noting that you’ll probably see some big names that look like they’re missing from the unicorn list – companies like Facebook and Amazon, for instance. These companies are now worth a mindboggling amount of money. Even after Facebook recently lost $123 billion in value overnight, the company is still valued at over $500 billion, whilst Amazon briefly crossed the $1 trillion market value line in September 2018.
However, as both Facebook and Amazon have gone public and sold shares on the stock market, they’re not generally called unicorns anymore. This term only applies to companies that remain privately owned.
**How Do Startups Become Unicorns?**
How Do Startups Become Unicorns?
**1. Rapid Growth**
Unicorns often reach their status through practically meteoric growth. Just look at Uber, which is now the world’s most valuable startup. From its humble beginnings in San Francisco in 2009, the ride hailing app has now expanded into 785 cities around the world. In 2015, after just five years in operation, one billion trips had been taken using the app and this number doubled to two billion a mere six months later.
Other well-known unicorn startups, like Slack, have enjoyed a similarly phenomenal growth. They have been identified as the fastest growing SaaS (Software as a Service) business of all time and in their first four years reached an impressive $4 billion valuation. Today, they have 8 million active users every single day. As startups rapidly grown, so does their liability. If a start up is in a taboo industry, there is often an increased vulnerability if they rapidly grow without a high risk merchant account.
That isn’t to say that this high growth is an easy feat to achieve. Founders have to be truly committed to their vision and have clear plans for its execution.
Scroll through the chart below to see how long it took startups to become unicorns. Hover over the bars to see the exact time in years, months, and days.
**2. Fast Product Development**
Early startups often lack the funds and the staff to take their time. As they’re often reliant on a ‘runway’ – how much time they have before investment money runs out -they need to bring their product to market as soon as possible.
That means products need to be built, launched, and updated very quickly. Aiming for a perfect product straight away simply isn’t feasible; instead many companies release versions of their products as they go, allowing them to test and experiment with what works.
**3. Strong Management Team**
Nowhere is your management team more essential than in a startup. You need a well-rounded and experienced executive team that can handle all the challenges thrown at it, whilst still maintaining the ability to scale quickly. Studies have shown that the leading causes of small business failure are normally related to issues to do with the founding team:
For further information on startup founding teams, take a look at the stats by clicking on the tab below:
Pivots and rapid changes in priorities can be part and parcel of startup life. You simply cannot stagnate; businesses need to stay ahead of the game and be willing to give their customers what they want – even if it’s slightly different to what you originally had in mind. Test everything and be prepared to change rapidly. For example, did you know that Flickr originally began as an online role playing game, and Twitter as a podcast search system?
Take a look at the Lean Startup Methodology to see how you can incorporate flexible approaches to product development into your own business.
Disruptive technologies improve upon and eventually replace existing marketplaces and services. Uber set out to revolutionise the taxi industry, offering an alternative to the status quo, whilst Airbnb has caused huge disruption in the hotel industry.
Although this might the only ingredient for growth, providing a truly transformative product will give you a big advantage.
**6. Excellent Product Positioning & Market Fit**
It’s easy to get stuck in the trap of making a product you want, only to find that your target market has no interest whatsoever. You need to get your potential customers involved as soon as possible, to make sure the product meets their needs and is something they would want to spend money on. You need to work with early adopters, take their feedback on board, and actively work on a ‘hook’ that makes your product unique, desirable, and indispensable.
For example, Slack gained much of its early renown as an office collaboration and communication tool through pre-release trials to businesses, word of mouth marketing and the clever PR hook of being an “email killer”. Their target market was clear from the get-go – and their immense success reflects this.
**The Most Successful & Valuable Unicorns**
The 20 biggest unicorn startups have a combined value of nearly $400 billion dollars and represent the top success stories in their industries. This combined figure is higher than the GDP of many countries, with only 28 countries boasting a GDP higher than this. These businesses are some of the most inspirational startups around, including Uber, SpaceX, Airbnb, Pinterest, and Stripe.
Take a look at the following chart to see information about the 20 biggest unicorn startups with the highest value. Simply hover over each company to see further information, including:
* Country of origin
* The time it took to reach unicorn status
* Select investors
**Most Successful Startup Sectors**
Startups are more common in certain sectors, and indeed, startups in particular industries are more likely to succeed. For example, Uber and other services paved the way for a surge in on demand companies, whilst other internet powered industries like the eCommerce, Fintech, and software sectors are also popular targets for innovation.
**Top 5 Sectors for Unicorn Startups**
* E-Commerce –14.1% of startups valued at over $1 billion
* Internet Software & Services – 13.7% of startups valued at over $1 billion
* Fintech – 13.3% of startups valued at over $1 billion
* Healthcare & Biotech – 9.4% of startups valued at over $1 billion
* On Demand – 7.8% of startups valued at over $1 billion
It’s worth mentioning that 13% of startups fall into ‘other’ sectors, where their particular niche is too small to warrant its own sector in the data.
Take a look at the full breakdown of the sectors unicorn startups fall into below, and compare which sectors see the most success:
**Where are Unicorns Founded?**
See the map below to see the countries with the highest density of startups worth a billion dollars or more:
The USA has dominated the unicorn rankings for years. Out of the 255 unicorn startups examined in this article, 47% of the companies are based in the United States. China is the next runner-up, with 30% of the current cohort of unicorns founded there.
**Unicorn Startups by Country Over Time**
We’ve put together the following chart which shows how the number of unicorn startups in each country has risen over time, showing how countries outside the USA are now embracing startup success:
**Unicorn Sectors Around the World**
Finally, we’ve designed the following map to show both the overall proportion of unicorn startups in each country, and which sector they belong to. The size of each pie chart represents the number of unicorn startups in the country, with the pie then divided into the sectors for each location.
As well as the hype and myth-making surrounding unicorn startups, there’s also plenty of scepticism on the subject too. In 2016, posters showing ‘dead unicorns’ were put up around Palo Alto University Avenue in the heart of Silicon Valley. They suggested that employee shares in Palantir – the data analytics startup valued at a mind-blowing $20 billion – were worth precisely nothing.
**How Do Unicorns Get Valued?**
Sceptics have honed in on the fact that the number of unicorns has increased in recent years, and have put this down to some imaginative accounting on the part of investors and founders. A study by university professors at the University of British Columbia found that as many as 50% of unicorns wouldn’t have got their horns without the use of complex stock mechanics. Furthermore, they estimated that 10% of unicorns were overvalued by 100%.
Unicorn valuations are often based on a combination of the amount of money raised by investors and the amount of equity that was given away in return. This often becomes very clear when a unicorn goes public. Square, the payments technology company, had a post fundraising valuation of $6 billion in 2014, but after its IPO it was valued at the much lower $2.9 billion.
With all the glamour associated with the unicorn title, it’s perhaps no surprise that companies want to drive up their valuations. A high valuation makes it easier to get the attention of journalists and investors, and drive further business efforts.
It’s always worth remembering that many tech unicorns haven’t ever turned a profit. Although they often have large amounts of revenue, much of their value is based on funding from investors – and this money won’t necessarily keep coming. For example, former unicorn Snapchat – which has since gone public – has never been a profitable business. Similarly, despite its expansive international network and huge valuation, Uber reported $3.2 billion in losses in 2017.
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