The secrets behind building a Unicorn

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This article was updated on Apr 29th 2015.

“What does it take to create a Unicorn – a company that achieves a valuation of $1 Billion or more within five years of first opening their doors and why are there more of them than ever? Is it luck or do they all have something in common, something that under the right conditions can be replicated? In this article I look under the covers of 34 of the worlds’ fastest growth companies to reveal all the techniques they have in common.”

For those want to be Entrepreneurs among you there are only three truths. You’ll fail – you’ll learn. You’ll stumble – you’ll regain your stride. You’ll fall – you’ll pick yourself up. Life is hard, it’s tough and unfair and there is never any guarantee of success and it’s your choice whether you persevere or not. The only thing that’s easy these days is quitting.

This article is my attempt to help those Entrepreneurs and business leaders among you who want to learn from some of the industries brightest stars how to boost your chances of success and it’s based on my first-hand knowledge and work with twenty three of the world’s largest hyper growth companies.

A Blessing of Unicorns

Today it’s unlikely you’ll go more than half an hour without bumping into a Unicorn or their close cousin the Super Unicorn – a Venture Capitalist term for startups that have soared to $1 Billion to $100 Billion valuations within five years of opening their doors. The billion dollar startup was once the stuff of myth but now they’re everywhere, backed by a bull market and founded on new, disruptive digital technologies and business models which make their speed of operation, rate of innovation and reach that much greater.

You’ve heard their names and you’re already using their products and in many cases they are now the new market leaders, the companies everyone wants to be or to beat. Airbnb, Beats, Box, Cloudera, Evernote, Facebook, FIS, Hailo, Instagram, Jawbone, LinkedIn, Nest, Netflix, Palantir, Pintrest, Pure Storage, Slack, Spotify, SpaceX, Snapchat, Square, Tesla, Twitter, Uber, Whatsapp and Xiaomi, these are just a few of the new breed of startups that have hit Unicorn status. They’ve torn down the established order, created new industries and rewritten the rules of business.

Between 1980 and 1990 there were just 3 Unicorns, between 1990 and 2000 there were 7 but in the last decade and just out of America there have been 34. Globally there are 174 Unicorns and the Unicorn, once an animal of legend the Unicorn is flourishing.

The Six Stages of Company Evolution

Irrespective of how successful companies are they all typically evolve along similar lines. The six stages can be categorised as follows:

  1. Creation
  2. Development
  3. Commercialisation
  4. Funding
  5. Promotion
  6. Expansion

While I will admit that it’s convenient to linearly categorise the stages of a company’s evolution most Founders will tell you that many of these stages happen in parallel.

Stage 1: Creation

The art of creation is a wonderful moment, well, I say moment but the fact is that it can take even the most seasoned serial Entrepreneurs years or even decades to find that spark of genius. Many laymen will tell you that the Eureka moment – the time when you feel in your head and your heart that you have a great idea for a new business is the hardest part of building a company but they’re wrong. Creation is simply the first hard thing in a long line of hard things and sometimes it’s one of the least stressful stages because you aren’t working all hours of the day and night trying to make your business a success stressed out of your mind because there’s no money left in the bank to pay your family’s food bills.

Over the years I’ve found that there is a common misconception that creative types – innovators and inventors are born and that only a small subset of society are deemed capable of being able to conceive great new products but that’s myth. Even if it wasn’t then not every business needs to be building next generation space vehicles and today where would we be without burger bars?

The fact is that there are a multitude of businesses in the world, from successful soft play centres and restaurants all the way through to companies selling next generation trading platforms and next generation autonomous vehicles. You’ll find that it’s often it’s more about the journey than the beginning or the end.

Hyper growth companies all have the following memes in common:

  1. Their idea is often simple, albeit sometimes complicated to design or implement
  2. Their idea solves an existing, mass market problem
  3. Their product has an obvious, communicable, quantifiable value
  4. Their product is often differentiated in the market place but not always a one of a kind
  5. Their businesses are all based on digital foundations
  6. Their user experience is simple
  7. They have vision
  8. They create the right solution at the right time

If you want to stand a chance of creating a successful business in today’s increasingly competitive world then I’d suggest that you follow each of these seven themes zealously. Disregard one and it can have dire consequences later on.

Fail to develop a vision and Venture Capitalists will pass you by, create a wonderful product but overlook the user experience and it won’t be adopted, create a differentiated product that doesn’t solve a need and it’ll languish on the shelf, fail to embrace digital and your competition will outpace you, develop a game changing solution before its time and it’ll tank.

Creation is a multi-sided activity and for those of you thinking that all this could become expensive or complicated then need I remind you that pen and paper is cheap and that you should never under estimate the power of a good story board to thrash your ideas out on. For those of you who have more resources then lucky you.

Stage 2: Development

The moment has come to productise your idea but beware because this is where anxiety can creep in because this is where the gaps and the cracks in your idea begin to appear – where boundless creativity meets harsh reality. Only one thing is certain at this stage – you’re going to end up iterating your product time and time again, tweaking, perfecting, tearing it down and starting again.

Hyper growth companies all have the following memes in common:

  1. They iterate fast and fail fast
  2. The products are very easy to adopt
  3. They use lean, agile development techniques
  4. They have flat organisational structures and devolved decision making
  5. They build good Minimum Viable Products
  6. They put design first
  7. The put themselves in the shoes of their consumers
  8. They understood and empathise with the end to end customer journey
  9. They know everything about their direct and indirect competitors
  10. They simplify the user experience then simplify it again and again
  11. They know what levers and behaviours drive their target market
  12. They have an Innovation First culture
  13. They control every aspect of the creation process
  14. They create integrated, third party ecosystems
  15. They line up potential customers to be Beta testers and Co-Developers

In today’s Digital First world it isn’t uncommon to see new start ups, like Etsy iterating their products 20 times a day, something that very few, if any established incumbents can match.

Stage 3: Commercialisation

Leaving this phase until later on can have ruinous consequences because your manufacturing costs and your sales price influence your route to market, the speed of customer adoption, your bottom line and your ability to reinvest in your company.

Most products on the market today already have upper and lower price bands that the markets support so if you want to, for example charge a premium or command higher margins then you need to offer additional value that your target market will recognise and accept.

Pricing can be emotional. You’ve potentially spent years conceiving and developing your product, you may have a mountain of debt and your passion for it means you run the risk of seeing, or trying to create value that the market will simply take for granted, tear down and toss aside as irrelevant. As hard as it is it’s vitally important that your pricing strategy is grounded in reality. Customer will not pay double the market rate because you want to pay your credit card bills of faster…

Hyper growth companies all have the following memes in common:

  1. They are all realistic with their pricing and know their market
  2. They can clearly articulate the true value of their products
  3. They have a consistent global pricing structure
  4. They avoid volume discounters to protect their channel integrity
  5. They are open to OEM, ODM, licensing and subsidy deals under the right conditions

Stage 4: Funding

Whether you’re starting a Taxi firm, creating an app or developing a new Cloud platform you’ll need funding – whether that’s from the credit card company, your friends and relatives, Private Equity or Venture Capitalists and many Founders have a love hate relationship with the investment community.

Investors are hard to live with but they’re sometimes harder to live without and often it’s not initially clear what additional value they bring to the table other than their chequebooks. Everyone has a different opinion of what the right investor looks like but the best investors in the market, the ones with the greatest returns bring a wealth of experience, contacts and business acumen to the table that’s hard to match but remember their sole purpose in life is to Exit at a premium.

Funding, more specifically operating capital, is the life blood of every business and you need to get used to the conveyor belt of rejections, unfortunately it’s also a sad statistic that the younger you are the more rejections you’re likely to get.

Hyper growth companies all have the following memes in common:

  1. US investors fund  to “Go Big” and downplay the short term ROI
  2. Their investors drove a Revenue First agenda, profitability came later
  3. The founders presented a clean, professional image from the off
  4. Most businesses began life self funded, investment came later
  5. Their investors looked for proof that the target markets existed
  6. Investors talked to the start ups customers to understand the sales potential
  7. The majority of the founders pitches fell on deaf ears
  8. Their investors invested in people – technology can be fixed
  9. They all had at least one well respected, well connected super star sponsor on board

Stage 5: Promotion

There’s an adage. You can have the best product in the world but if no one knows it exists it’s never going to move. There is a distinct difference between Promotion and Marketing and all too often the two are conveniently kludged together. There is a reason why I’m making the distinction.

Marketing is often a controlled, structured activity, such as a TV advert that can consume a huge amount of capital but Promotion in its truest sense is often a spontaneous, loosely structured activity such as a Flash Mob that can cost comparatively little. This is why promotion, rather than marketing is frequently the Entrepreneurs favourite weapon of choice. This said though it’s often the investors inter portfolio trading that often drives the initial stellar top line growth – never under estimate the power of a strong network.

Hyper growth companies all have the following memes in common:

  1. They created tight knit User Communities broken down by industry and, or job role
  2. Their User Communities eventually became Expositions
  3. They were tireless promoters
  4. They leveraged their investors insider networks and Black Books
  5. Their VC and PE investors cross sold goods and services into the remainder of their portfolios to create hyper growth
  6. They created Ecosystems and Developer communities
  7. Their founders took every opportunity to create new Champions and Sponsors
  8. They weren’t afraid to use Freemium models
  9. Their first sales force was direct and in house
  10. They developed rapid response closed loop promotion and marketing systems
  11. They eventually developed new routes to market
  12. They had a heavy reliance on digital promotion techniques
  13. Each Founder developed a hard nose

Stage 6: Expansion

New borderless, digital business models have let organisations expand into new territories at the click of a button. Want to go Global in seconds? Upload the app to your service to iTunes or Google Play. Despite this though organisations still combine the best of digital and physical techniques to sell and promote their products into new regions because they realise that they still need people to talk to people.

Hyper growth companies all have the following memes in common:

  1. They moved into new markets before nailing their home market
  2. They identified favourable markets based on language, law and demographics
  3. They used offshore sales agents to establish beach heads in new countries
  4. They established strong, specialised partner networks
  5. They tweaked the product according to the needs of the new market
  6. They relentlessly controlled every aspect of their operation

Conclusion

Every Unicorn I’ve worked with has exhibited all of these memes, not just a few of them and it appears that the Unicorns DNA is all of these put together. Techniques change though and this article will evolve over time as new ones come to the surface and while success is never guaranteed hopefully this article has gone some way to showing you that there are different ways to stack the odds in your favour. I hope that you’ve found this article useful and that it contributes to your success.

About the Author: Recognised in 2013 and 2014 by the public as one of Europe’s leading emerging technology and disruptive strategists Matthew Griffin works with Analysts, Entrepreneurs, Investors, Governments and global organisations to help them see, reveal and adapt to the impact that new technology driven trends and business models will have on culture, society and their business. Twitter me @mgriffin_uk or call me on +44 (0) 7957 456194.

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