Jumping on to the crowded startup bandwagon, founders desire to build a billion dollar company and join the unicorn club sooner than later. Fair enough.
In USA, venture capitalists invested 48.3B USD in 4,356 deals in 2014, a 61% increase in dollars and a 4% increase in deals over the prior year, according to MoneyTree. Back home, data from the financial research firm VCCEdge says that investors put in 2.46B USD into startups in India until end of Q2 2015.
How to build a billion dollar company?
How founders and investors can predict if an idea will translate into a billion dollar company remains a billion dollar question.
It could be just as tough as predicting if a movie will be a hit, in spite of taking care to include all the trappings of a runaway hit – a punching story-line, an earth-shaking script, a memorable dialogue, an ensemble star-cast, out-of-the-world visual effects, captivating music, and what not.
Or even tougher. Because we can’t be sure what the trappings of a unicorn company are. A right mix of passion, funding, necessity, design, marketing?
Sometimes passion drives invention than necessity, to realize there is little or no market for it.
I remember this story a teacher had told us at school. Two boys were late to school by an hour and persistently kept reasoning that they were late because they implemented what they learned in the moral science class – helped an old lady cross the street. Their teacher was puzzled how that would cause a one-hour delay. Finally, one of them took a deep breath and said, “It took us an hour to convince her to cross the street. She didn’t want to.”
My son tells me a joke about crazy inventions:
“They were so focused on whether or not they could, that they didn’t have time to think if they should.”
Mobile apps, for instance – there are some we readily adopt. There are many we don’t use, there are many we don’t need – leaving us wondering why they were invented at all.
And then there are some we really need, but we get annoyed and uninstall them, because they have a steep learning curve. I uninstalled a famous app, which is actually part of the unicorn club! I realized it’s not just me when I read similar views from users who defected to easier alternatives. If this app were a bit more intuitive in its design, it would’ve probably gone public by now. We have to wait and see if it will continue to ride on the first mover advantage as its future remains uncertain.
CB Insights lists 143 private unicorn companies across consumer internet, social, e-commerce, hardware, software, financial services, big data, healthcare and other markets. Seven of them are from India – Flipkart, Snapdeal, Quikr, Ola Cabs, One97 Communications, Zomato Media and Mu Sigma.
Peter Cohan, a VC firm, postulates that the odds of achieving billion dollar success are one in five million, because venture capitalists fund about two out of 1000 startups that pitch to them, and one out of 10,000 startups that get funding becomes a unicorn.
So what’s the magic formula for building the next billion dollar company?
Existing unicorn companies hold vital clues for aspiring unicorns. If you could tease out the unicorn DNA out of them, you may be able to synthesize unicorns or produce test-tube unicorns.
People want some problems solved. But they seem okay with some problems that they have learned to happily live with. They may prefer status quo, especially if they are afraid of change or the pain is not too painful or the solution is way too complicated.
We readily signed up for the easy Facebook solution that fulfills our compulsive need to stalk college-mates and exes or show off our holiday photos. Agonized by the pain finding relevant information, we quickly started using the simple Google solution. Likewise, we happily downloaded Uber, because we badly needed a solution to the tormenting transport problem.
If the common threads among the big boys (the super-unicorns) are to go by, then they are providing a simple solution to the old ladies who badly need to cross the street.
Audience-based platforms or freemium pricing models seem to work faster, but unicorns are more like chocolates eagerly purchased and consumed than bitter pills forcibly shoved down people’s throats. Unicorns are what users talk about and actively recommend to others. Did Facebook or Google or Twitter sell to you? You heard about them, proactively checked them out, eagerly started using them and in turn recommended them to others.
It apparently boils down to a technology that will induce a widespread mutation in the lives of users. And at least one entrepreneurially hardwired cofounder (the more, the merrier).
That is to say technological expertise alone is not enough. TechCrunch notes that first-time entrepreneurs are rare among unicorns as 80% of them had at least one cofounder with prior entrepreneurial experience. The 39 unicorns that TechCrunch lists have up to five cofounders. Sounds intuitive. More cofounders means more brains, more hearts, more commitment and more importantly more accountability invested in the venture. The kind of accountability that can’t be expected of non-founding executives.
What you also need is a ‘yes’ for an answer to these questions:
- Do they have an excruciating pain?
- Do they want to get rid of the pain?
- Is your balm simple?
- Will they readily use it?
- Will they urge others to use it?
However, one so-called magic ingredient you don’t necessarily need to get started with building the next unicorn is VC funding. Some unicorns started out of nothing. Flipkart was started with about 400K INR (less than 7K USD). Google rose from a stage when it was operated out of a friend’s garage. Funding doesn’t hurt, and money is definitely more likely to breed money. But money doesn’t necessarily breed itself as evidenced in failed startups.
Two companies from India – Grofers and OYO Rooms – feature in the list of 50 companies predicted to be future unicorns by a CB Insights / NY Times algorithm. It’s interesting to note that the algorithm, known as the Mosaic Score is based on signals like “quantity and quality of job postings, web traffic, social media chatter, executive turnover, customer signings, mobile app data, and news sentiment, among others.
Update 11/11/15
Online education company, Udacity, has raised $105M of funding and evolved as the latest new unicorn.
