People often talk about popular unicorn companies like Uber, Airbnb, Snapchat and Pinterest and their journey to success, but do people know what a unicorn company exactly means. What is the criteria for a startup company to become a unicorn? A unicorn in the Business world indicates a privately owned startup company that has a valuation of $1 billion.
The term was first coined by venture capitalist Aileen Lee, choosing the mythical animal to represent the statistical rarity of successful startup companies. The definition of a startup has remained unchanged ever since, while the number of unicorns have gone up. Unicorn has now become a catchphrase within the global startup market.
When a startup becomes a unicorn, it is a testimony of a successful business model of the company and its value proposition in the eyes of the investors. Having the unicorn helps grows in both visibility and operational outlay, which leads directly to greater business opportunity for the organization.
The Features of Unicorn Startup
The process to be a unicorn is not easy and each and every unicorn has its own story. These companies have similar set of features that makes them a unicorn startup.
Groundbreaking innovation: The unicorn companies have brought a disruption in the field they belong to. Uber, for example changed the way people commuted. While Airbnb changed the way people planned their way while travelling. These innovative strategies are what makes them unicorns.
The Firsts: The unicorn companies are mostly the starters in their industry. They change the way people do things and gradually create a necessity for themselves. They are also seen to keep innovation up and running to stay ahead of competitors which might later boom.
High Technology: Most unicorns have a business model run on higher level of technology. Almost 87% of the unicorn products are software, 7% of them being hardware, while the other 6% of them being based on products and services.
Consumer focused: Their goal into simplify and make things easy for consumers and be a part of their day to day life. 62% of the unicorns are B2C companies. Another key ingredient is keeping their products and services affordable.
Privately owned: Most of the unicorns are privately owned which gets their valuation bigger when an establish company invests in it. There are 361 private companies around the world valued at over $1 billion. India has 16 of these companies, taking up 4% of the overall share.
Key ingredients of a Unicorn
- A simple solution to an existing problem
- A strong and highly marketable value proposition
- A clear vision for the future of the company and their products and services they offer
- Potential beta testers and customers
- An easy to use UX that allows users to quickly adopt and get the product.
Investors of the Unicorn companies
Great ideas don’t have value until you do something with them, which is what the unicorns companies are good at as they have the right people, skills, tools and data to make the magic happen. These element are takes into consideration by the investors for deciding which startup to fund. The traction are important also the projected revenue and growth.
But these projections need to be backed by hard data and the forecasting growth for the next 6, 12 or 18 months. If a startup asks for funding without any numbers to back up their claims, the potential investor may not be interested for good. Instead they should wait to seek out investors until they have a marketable product with proven demand as well as a number of opportunities coming your way.
Can only a startup be a unicorn?
The answer is yes because unicorn is a term given only to startups who have a valuation of over a billion. The startup that exceed the valuation of 10 billion are grouped under the term called decacon (which is a super unicorn). Dropbox, SpaceX and WeWork are some example of decacon.
For the startups based out of Canada, there is an exclusive term for what we call a unicorn. It is narwhal. This means that any Canadian startup company with a valuation of over 1 billion is called a narwhal. The popular narwhale companies are hootsuite and wattpad.
Disruption and value seeding
One of the main factor behind the growth and success of each and every unicorn is the disruptive impact it has on its chosen market. Consider the example of on demand taxi aggregator Uber. Uber uses smartphones as a medium to connect consumer with their nearby cab drivers at the touch of the button, the only reason that has driven the massive success that the company continues to enjoy.
Uber not only made booking a cab booking more convenient for the end user, but also headed more operational efficiency for cab drivers and taxi service providers by helping them optimize their revenue streams. As a results, the company one of the most successful unicorn with a current valuation of 64.5 billion.
Market size of the unicorn companies
It is just as vital for startups aspiring to make the title of unicorn to analyze the market they are operation in. Entrepreneurs must analyze their target markets well in advance and aim to the title of a unicorn in order analyze the markets they are operation in. Entrepreneurs must analyze their target market well in advice before aiming to make their startups into the next big thing in the startup community.
An example of the difference market size can make to disruptive startup is airbnb. Founded as an alternative lodging solution for business travelers, the company soon pivoted its approach to target the much larger global hotel industry, which is currently worth 550 million.
Maximizes growth and not profit
There no rule that says need to be profitable to become a unicorn. In fact one of the earliest unicorns, Nutanix earned the status in 2013 despite a complete lack of profits. The fact is that profits growth don’t always go hand in hand. In fact pursuing profit can sometimes hinder your ability to increase revenue.
That is work towards building sustainable growth rather than opting for a quick, short sighted bump in profits. Instead of focusing on growing your margins to impress investors with fast ROI, focus on perfecting your product, increasing your total revenue and growing your user base.