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Unicorn Secrets: How Entrepreneurs Build Billion Dollar Businesses

Innovation, speed and the digital edge

26Mar

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

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

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 margin

Promotion in its truest sense is often a spontaneous, loosely structured activity such as a Flash Mob that can cost comparatively little.

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? 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 at the world’s fastest growth companies to reveal the things they have in common

For those fledgling 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.

This article is my attempt to help those Entrepreneurs and business leaders among you who want 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.

Airbnb, Beats, Box, Cloudera, Evernote, Facebook, FIS, Hailo, Instagram, Jawbone, LinkedIn, Nest, Netflix, Palantir, Pintrest, Pure Storage, 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 three Unicorns, between 1990 and 2000 there were seven but in the last decade and just out of America there have been thirty four. Globally, there are now one hundred and seventy four Unicorns.

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:

  • Creation
  • Development
  • Commercialisation
  • Funding
  • Promotion
  • 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.

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 unfortunately however that’s a myth. Even if it wasn’t then not every business needs to be building next generation space vehicles.

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 often it’s more about the journey than the beginning or the end.

Hyper growth companies all have the following memes in common:

  • Their idea is often simple, albeit sometimes complicated to design or implement
  • Their idea solves an existing, mass market problem
  • Their product has an obvious, communicable, quantifiable value
  • Their product is often differentiated in the market place but not always a one of a kind
  • Their businesses are all based on digital foundations
  • Their user experience is simple
  • They have vision

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.

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. For those 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:

  • They iterate fast and fail fast
  • They use agile development techniques
  • They have flat organisational structures and devolved decision making
  • They build good Minimum Viable Products
  • They put design first
  • The put themselves in the shoes of their consumers
  • They understood and empathise with the end to end customer journey
  • They know all there is to know about their direct and indirect competitors
  • They simplify the user experience then simplify it again and again
  • They know what levers and behaviours drive their target market
  • They have an innovation culture
  • They control every aspect of the creation process
  • They get a broad section of people to test their products, not just their family
  • They got potential clients, who eventually became beta testers involved in development

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. Customers 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:

  • They are all realistic with their pricing and know their market
  • They can clearly articulate the value of their products
  • They have a consistent global pricing structure to avoid grey imports
  • They avoid volume discounters to protect their channel integrity
  • They are open to OEM, ODM, licensing and subsidy deals under the right conditions

Fig 1. Applying Pricing Corridors

This is a simple methodology that can quickly help you establish the right market price for your new products without necessarily having to resort to committing to a lower price.

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 - 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 finance. 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. Remember however that 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:

  • Their investors drove a Revenue First agenda, profitability came later
  • The founders presented a clean, professional image from the off
  • Most businesses began life self funded, investment came later
  • Their investors looked for proof that the target markets existed
  • Their investors talked to the businesses customers to understand the sales potential
  • The majority of the founders pitches fell on deaf ears
  • Their investors invested in people - technology can be fixed
  • They all had at least one well respected, well connected super star sponsor on board

Stage 5: Promotion

Here’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 put together.

Marketing is often a controlled, structured activity, such as a TV advert that can consume a huge amount of capital. 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:

  • They created tight knit User Communities broken down by industry and, or job role
  • Their User Communities eventually became Expositions
  • They were tireless promoters
  • They leveraged their investors insider networks
  • Their investors cross sold goods and services into the remainder of their portfolios
  • They created Ecosystems and Developer communities
  • Their founders took every opportunity to create new Champions and Sponsors
  • They weren’t afraid to use Freemium models
  • Their first sales force was direct and in house
  • They developed rapid response closed loop promotion and marketing systems
  • They eventually developed new routes to market
  • They had a heavy reliance on digital promotion techniques
  • 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:

  • They moved into new markets before nailing their home market
  • They identified favourable markets based on language, law and demographics
  • They used offshore sales agents to establish beach heads in new countries
  • They established strong, specialised partner networks
  • They tweaked the product according to the needs of the new market

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.

About the author: Recognised in 2013 and again in 2014 by the public as one of Europe’s leading emerging technology and disruptive innovation experts Matthew Griffin works with Her Majesty's Government and Private Sector organisations around the world to help them foresee the opportunities and threats that emerging technologies and trends will have on business, culture and society at large. Twitter me @mgriffin_uk

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