What’s a Unicorn, and How Does a Company Get There?

Have you ever wondered why such startups as Airbnb, Uber and Pinterest have been called “unicorns?” In venture capital parlance, unicorn is a term used to describe a privately-held startup organization that has achieved a valuation of over $1 billion.

The term was first popularized by Aileen Lee, venture capitalist and founder of CowboyVC, a seed stage venture capital fund based in Palo Alto, Calif. Lee first wrote about unicorns in her article “Welcome to the Unicorn Club: Learning from Billion-Dollar Startups,” wherein she focused on software startups founded in the 2000s and suggested that only 0.07 percent of them ever reach $1 billion valuation — such startups were so rare, she wrote, that finding one was as hard as finding a mythical unicorn.

According to research, a startup has less than a two percent chance of becoming a unicorn. So how do you get to the billion-dollar valuation? Is there a formula that you can apply to earn the coveted unicorn tag? Here are a few patterns that have been observed across high-value startups, aka unicorns, to find out what they do differently and how they achieve such success.

Create a Meaningful Value Proposition

If you wish to achieve unicorn status, the first thing to do is develop a robust value proposition that not only differentiates your company from its competitors, but is also easy for your potential customer base and audiences to understand. A value proposition is the advantage you offer to those who are willing to pay for your product or service.

According to research done by CB Insights, 42 percent of startups fail because there is no market need for their product. Hence, it’s important for every company to have something on offer that is essential to the marketplace and is scalable — it could be something that has meaning for the buyers, or it could be something that solves a problem that people don't even know exists. One such example is a smart phone — decades ago, no one thought they’d need a portable telephone or computer that could take photographs, among other things. But today, these products are ubiquitous.

Evolve Your Value Proposition Persistently

What kills many successful startups is their inability to pivot in response to change, because they forget the one important rule of business — you either adapt or face extinction. This means that your value proposition needs to expand to reflect the growth both within and outside your company.

Therefore, in order to stay ahead of industry trends, you must keep innovating. Unicorn-type propositions need unicorn-type execution — they require consistent focus to ensure that the ideas can grow and have every chance to take off.

Focus on Your Primary Customer Group

To disrupt a market, find the customer group that will carry the load of your value proposition, to not only drive more sales, but also tell others about you. For this, you need to ensure that you have a clear and sharply-defined value proposition, so that your primary users become dedicated followers. The next step is to listen to them and figure out how they will react to new ideas and competition.

According to the book “Marketing Metrics,” you have a 60 to 70 percent probability of selling to existing customers, whereas only a five percent to 20 percent chance of selling to new prospects. Also, existing customers are 50 percent more likely to try out your new products and spend 31 percent more as compared to new customers. Therefore, it’s typically better to focus on your key customer group instead of spending valuable time and efforts trying to reach many contrasting groups.

Identify Failure, Move On

Failing at some point or another is inevitable. And if your idea fails, be as objective as possible and learn from any mistakes that happened along the way. Accept the real reason for the failure sooner than later, as that will save you time, money and the energy required to be truly resilient.

No one gets it right every time, and there is no set formula for becoming a billion-dollar company. Becoming a unicorn will remain a rare achievement, and sometimes, even the most valuable product or service won’t create magic. So stay focused on the target customer, objectively look at your ideas and execution, and evolve with tenacity, resilience and perspective to have the best chance at success.

The Other Side

While there are those who focus only on getting to the billion-dollar valuation, others believe it is better to build companies that go beyond just a number. Hence, in order to be a successful entrepreneur, you need to be driven by what your company is and what it stands for, and not just where you want it to end up. Ultimately, focusing on creating a superior product or service, promoting your unique selling point and treating customers well can help drive you to meeting your goals.