By Emily Bauer
Every startup founder dreams of becoming the next unicorn. But what separates the dreamers from the achievers? What does it really take to reach a $1 billion valuation?
Unfortunately, there’s no shortcut or magic formula for creating a $1 billion startup pipeline. There are, however, unicorn founders you can look to for inspiration and advice on how to grow your own business. Whether you’re a founder, sales rep, or growth hacker, building a $1 billion startup pipeline is a lofty goal. The best way to learn about the keys to unlock unicorn-level growth is to go straight to the source. Study what others have done to achieve crazy growth.
We’ve gathered tips and advice from founders who launched 12 of the world’s most successful startups. These growth secrets offer valuable lessons that you can leverage to boost your business into potential unicorn territory.
1. Don’t pitch investors until you have a business worth funding
It takes more than a killer pitch to woo investors. That’s why Adi Tatarko, CEO of home design website Houzz, says bootstrapping was “one of the smartest decisions” her company made on its path to reaching unicorn status.
Sure, having investors backing your startup can help fuel your growth by funding new hires, and give you access to a network of mentors and other entrepreneurs. However, going to investors too early can be shooting yourself in the foot.
“Go to investors with a real product with traction, instead of a deck,” Tatarko advises. “If you spend the first six months to a year building a great product or service rather than chasing investors and redoing PowerPoints, you’ll be surprised how the dynamic with investors will change.”
Tatarko and her husband Alon Cohen launched Houzz in 2009 after struggling to find remodeling ideas for their home. They didn’t go to investors until they’d already developed “a proven concept with an engaged community and knew how to execute.”
Today, Houzz gets 40 million unique visitors every month, including homeowners from 15 different countries.
2. It’s OK to keep your day job as long as necessary
Not everyone can afford to quit a salaried job to become an entrepreneur–but that’s not an excuse to give up on your dreams.
There’s something a lot of people don’t understand about building a startup: You don’t HAVE to quit your day job to lay the foundation of a successful company. Especially if your job is paying the bills and funding your venture. As a general rule, you should aim to bootstrap first and raise later–if at all.
Take Girish Navani, CEO of eClinicalWorks, for example. Now the CEO of a billion-dollar startup, he bootstrapped his company for two whole years before leaving his day job. Because he held down a full-time job in addition to building his product, he was able to buy himself enough time to thoroughly develop, test, and validate his product and customer base.
His patience and perseverance paid off. Now Navani’s startup brings in $300 million in revenue–and it’s all privately owned, with no plans for seeking investment or going for an IPO.
It’s not easy to balance a full-time job with launching a startup (easily a full-time job in its own right), but it is possible to build a unicorn startup while still working to pay the bills.
3. First-mover advantage is not crucial to success
Don’t let competition scare you away from launching your product. Just because a competitor is first-to-market, doesn’t mean there’s no room for your startup. If anything, an early competitor’s success is a good sign that you should continue down your path: It means the market is ready for a product like yours.
For example, Lyft was founded in 2012–a full three years after Uber first disrupted the ride-sharing industry. Although Uber was founded first, Lyft was able to establish a foothold in the market and is now worth a hearty $24 billion.
This is an important reminder that you don’t need to be the first company of your kind to be successful. In most industries, there’s room for more than one disrupter and the market often responds well to new companies with the right positioning. If you can differentiate by improving upon on existing solution, the market can be very accommodating–especially if there’s not a ton of competition yet. That is, you don’t need to be first, but you do need to stand out.
4. Focus on growth before profits
For some startups, deciding whether to prioritize on growth or profits can be a bit of a chicken-and-egg dilemma. It’s often possible to increase profit margins by making changes that don’t necessarily result in growth.
Dheeraj Pandey, co-founder and CEO of Nutanix, wants aspiring unicorns to remember that maximizing profits does not equate to maximizing growth. He reached a $1 billion valuation in 2013 and nailed the formula for revenue growth, despite never turning a profit.
In a 2018 interview, Pandey explained how he quantifies the value of growth versus profit: “We believe that the right balance between the two is measured by the rule of 40. Our revenue growth rate plus free cash flow as a percent of revenue should be at least 40–ours is 49.”
It can be easy to get caught up in the pressure to turn a profit and increase margins–especially when you’re reporting to investors who want a fast ROI. If you’re backed by investors, it’s important to manage their expectations and communicate your goals transparently.
If you’re lucky enough to have the resources to bootstrap, Pandey’s advice is to resist the pressure to compromise sustainable growth for the sake of a short-term profit boost. In any case, startups shouldn’t take drastic measures to maximize profits. Focus on long-term steady growth rather than shortsighted corner cutting to boost profit.
5. Build something you would buy yourself
When developing a new product, always aim to create something you would readily spend money to purchase.
OK, so this tip is less of a growth secret than it is good business sense–but it’s still important for aspiring entrepreneurs to see examples of it in action. After all, you can’t create solutions to problems you don’t understand, and you can’t fake passion for something you would never use.
That was the key to New Relic’s platform, which is made for engineers, by engineers. Now a $3 billion tech company, New Relic began as a software engineer’s desire to find a better way to maintain a working code base and prevent code decay.
Look for problems in your own world and figure out how to scale those solutions to serve an entire industry.
6. Invest heavily in your people
President and co-founder of Eventbrite, Julia Hartz says her top piece of advice for startups is to “really invest in the people.”
For the first two years of Eventbrite, the team consisted of just three employees. Once Eventbrite gained a bit of steady traction, Hartz decided her next step should be to focus solely on building an all-star team.
When the company raised its first round in 2010, Hartz realized that if she focused the majority of her time on the people, it could produce results for the company. So, she doubled-down on her efforts by bringing on more people and prioritizing the team’s best interests.
She says, “I had a moment where I thought, I wonder what would happen if one-third of our founding team focused solely on people. I thought, I haven’t really seen a founder just focus on people and just coming to the table for every major decision thinking about how it will affect people or advocating and amplifying the work of people.”
You need to continually seek out the right people and make decisions that are best for the team. Startups without the capital to hire more team members can embody this advice by building connections and networking with mentors, potential investors, and advisers.
Other Articles From AllBusiness.com:
The Complete 35-Step Guide for Entrepreneurs Starting a Business
25 Frequently Asked Questions on Starting a Business
50 Questions Angel Investors Will Ask Entrepreneurs
17 Key Lessons for Entrepreneurs Starting a Business
7. Embrace the power of word-of-mouth marketing
Stripe’s growth trajectory is impressive even by unicorn standards. Founded in 2010 and launched publicly in 2011, Stripe received Series A funding from a number of investors in the payments industry, including PayPal co-founders Peter Thiel and Elon Musk.
Thanks to these valuable endorsements and connections, as well as its affiliation with accelerator center Y Combinator, Stripe was quickly adopted by a large network of entrepreneurs and developers. From there, word of mouth among developers and founders drove its growth and Stripe became the payment processor of choice for emerging startups.
In a 2012 interview, co-founder and CEO Patrick Collison discussed his reaction to how quickly Stripe initially grew through word of mouth: “That was surprising to us because it’s a payment system, not a social network, so it’s not something you’d think would have any virality whatsoever. But it became clear that everything else was so bad and so painful to work with that people actually were selling this to their friends.”
8. Your end goal doesn’t have to be an exit
When VCs invest in a startup, the assumption is often that everyone is hoping for a big exit. But is that really always the case?
Even though the whole industry can seem obsessed with exits, going public isn’t the end goal for every startup. In fact, some entrepreneurs actively avoid venture capital because they don’t want the pressure to go public. Because how could you not aim to go public if you have VCs in the deal? That’s typically when VCs see returns on their investment.
Well, that didn’t stop Ratmir Timashev, CEO of Veeam, from striking a deal with VCs even though he planned to keep his business private. Veeam was founded in 2006 and remains privately held to this day. So, how did he do it?
Timashev says a creative deal structure that made it possible to receive funding without planning for an eventual exit. More specifically, he negotiated an investment deal that pays dividends to the VCs.
Of course, his scenario was unusual, because he was able to bootstrap Veeam’s initial growth with some of the money he made from a previous venture (which did exit). He encourages founders to think outside the box and be creative when structuring deals with investors.
9. Seek out co-founders with complementary skills
In many cases, before you can raise or make a positive impression on investors, you need to round out your team. Having a solid team, including a technical co-founder, is often crucial to getting investors to take you seriously. In fact, Canva co-founder Melanie Perkins says bringing on a technical co-founder, Cameron Adams, was “absolutely critical” to their ability to raise funding.
“Cam gave us the credibility that we needed to land the investment, but he’s also incredibly talented and a genuinely great guy—it’s been a privilege working with him for the last five years,” she says.
But it’s easier said than done. Perkins and her co-founder, Cliff Obrecht, say it took some time and persistence to convince Adams to join their team. Once he agreed to work with them, Adams became the first and only member of their tech team.
“I don’t think I ever found the playbook to finding a tech co-founder,” says Perkins. “I just kept on planting seed after seed, and in some cases the same seed in different patches of the field, until eventually, eventually, one grew!”
10. Be willing to pivot when necessary
Some of the most successful startups in the world wouldn’t exist if the founders refused to change course from their original company vision.
Henrique Dubugras and Pedro Franceschi began dreaming up business ideas together when they met at just 16 years old. Today, they’re two of the youngest founders to have reached unicorn territory.
In 2016, Dubugras and Franceschi were students in their first year at Stanford. Shortly after, they joined Y Combinator’s accelerator center in the hopes of growing their VR company, Beyond. “I think three weeks in we gave it up,” says Dubugras. “We realized we aren’t the right founders to start this business.”
Fortunately, their experience at Y Combinator helped set them in a new direction. They saw firsthand how difficult it was for founders to gain credit. That understanding, combined with their tech background and large network for entrepreneurs, inspired them to build a solution for startups that needed access to credit.
In April 2017, they started Brex, dropped out of Stanford, and focused on their business full-time. The takeaway here is simple but often difficult to implement–especially when you’ve invested time, energy, and ego into an initial idea that’s just not working out. Be wise enough to pivot when necessary and change your direction to play to your strengths. Stay humble enough that if something is not working, your ego doesn’t get in the way of making a change.
11. Remember when your customers succeed, you succeed
Since co-founding Zilingo in 2015, 27-year-old Ankiti Bose has grown her fashion website into a unicorn-size e-commerce business by continually focusing on her customers’ needs.
Zilingo first launched as an online marketplace to help small merchants reach more customers. Bose says her initial inspiration came from interacting with merchants selling goods at local markets in Southeast Asia. She saw that there were thousands of sellers who were limited in their ability to scale their business.
The company has since expanded to helping vendors access capital, factories, and technology that makes it easier to purchase materials, manufacture goods, and sell to consumers around the world.
Zilingo continued to grow, in part, because it continued to uncover new ways to help customers beyond its initial offering. The lesson here is to always keep an eye out for new opportunities to differentiate your business and stand out by delivering a better customer experience.
12. Think like a unicorn from day one—(prepare for explosive growth)
Can the advice to “fake it ‘til you make it” apply to becoming a unicorn startup? Not exactly.
But you can increase your odds of success by acting like a unicorn from the start. According to Allen Brouwer, co-founder of unicorn startup BestSelf Co., that means building a solid foundation that can support your company as it grows.
His advice for first-time founders is to “build your business as if you were building a $100 million company, not as if you were building a one person start up.”
This means developing standard operating procedures that will make it easier to scale your business and grow your team. It might seem unnecessary to document your procedures when your team is small, but doing so allows your startup to scale without losing sight of the approach and procedures that made your early growth possible.
Brouwer says, “Once you start gaining momentum, you’ll wish you had the systems, processes, and hiring practices of the big companies and not the piecemeal processes of a startup.”
RELATED: 10 Lessons for Entrepreneurs I Learned From Being a ‘Shark Tank’-Type Judge
About the Author
Post by: Emily Bauer
Emily Bauer is a writer and researcher for Propeller CRM, a simple Gmail CRM solution focused on building pipelines, closing sales, and growing business. Emily is a running and travel enthusiast with a passion for all things writing. Her passions are fueled by Earl Grey, yoga, and tofu.
Company: Propeller CRM
Website: www.propellercrm.com
Connect with me on Twitter and LinkedIn.
The post How to Build a $1 Billion Business: 12 Secrets From the World’s Most Successful Startups appeared first on AllBusiness.com
The post How to Build a $1 Billion Business: 12 Secrets From the World’s Most Successful Startups appeared first on AllBusiness.com. Click for more information about Guest Post.
To discover more visit: allbusiness.com
