How billion dollar valued companies are built, and how you can build your own unicorn from your garage.
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%).
But it’s not all that that rosy. 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 startups fail? And how you, as a budding entrepreneur, can avoid those mistakes to make sure you ride your unicorn into the Silicion Valley sunset?
Here are some tips to guide you:
1). Money, money and more money
You fail to raise sufficient cash and run out of investment. Also, failure to raise further rounds can strangle your little unicorn even before it grows causing severe malnutrition.
Build a working prototype and get early traction. Any traction. Show that it works and you generate some cash. Even a little. And use that to show to potential investors that your model works.
Raising money is such a double edged sword: raising too much dilutes you early on, and raising too little leaves you constrained to experiment, make mistakes and take a few early hits.
Focus on delivering a really good MVP (minimal viable product) and you are ready for demo day. Make sure you clearly spell out how much investment you need, and where you will spend it. Spend time crafting your pitch deck. Don’t cut corners…it could make or break your company.
2). No Market Need
Does the market really need your product? Will people really fork out money for your solution? Is it even solving anything?
Most startups get sold on the tremendous value of their own solution without realizing the possibility that the market would feel otherwise.
A simple way to gauge the effectiveness of your potential idea is to first investigate if a competing solution exists and its state in the market. This might validate your idea.
And if you are building something new altogether, ask as many people in your circle for their brutally honest opinion.
It’s better to not build something than building something nobody will want at all. You save yourself valuable time, endless effort, embarrassment and your investors a ton of money if you don’t build something that nobody wants.
3). Bad Business Model
Your business model has to make financial sense and be viable. It needs to be scalable, transparent and affordable.
A great many startups failed because of poor business model that drained them financially. While the traction was great, they could never capitalize on their user base and therefore, shut down even after decade.
There’s no shame in copying a successful business model. Re-inventing the wheel seldom pays off, and almost never pays off big.
While everyone wants to be a giant killer (Netflix vs. Blockbuster), being a big player in your space is not bad at all. With a solid business model in place, you can grow and experiment with hybrid revenue models later in the life of your startup.
Build that startup and let it grow to the unicorn it’s meant to be. At Gymscanner.com, we check all the boxes to let our nascent company grow beyond our shores.