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What it takes to become a unicorn

They’re rare, they’re magical and they have to be seen to be believed. But unicorns aren’t just mythical beasts: they’re what every business owner aspires to. Here, John Waddicker, Director of Positive Commercial Finance, explains what it takes to become a unicorn

A unicorn startup, or unicorn company, is a privately owned business valued at over $1 billion. Although still very much a rarity, the number of unicorn startups is higher than ever. The exact total is always in flux, but recent research by CB Insights found that there are over 390 unicorn startups globally.

So how do they do it? To find out how clever ideas become global sensations, Positive Commercial Finance has taken an in-depth look into some of the biggest unicorn companies in the UK and across the globe. Our analysis shows that regardless of industry, location or manpower, companies that achieve unicorn status have a number of factors in common.

1 A five-year build-up — On average, it takes a successful unicorn startup five years to hit the coveted $1 billion mark. This isn’t always the case, though; some companies can soar to unicorn status in as little as two years, while others can take more than a decade of hard work to get there.

2 They’re built on partnerships — If you’re looking to create a unicorn startup, your best bet is to find a business partner. Of the top 100 most successful unicorn companies, 35% began with two founders. It’s not all bad news if you’re more of a lone wolf, as companies with a single founder are the second most common.

3 They mainly produce software — The most successful unicorns are those that provide their customers with quick and convenient services. That’s why 87% of successful unicorns create software products: easy-to-use, close at hand programmes that make our lives easier.

4 They cover a wide range of industries — While software is the dominant product type, unicorn startups cover a wide range of industries. Retail and technology account for the lion’s share, but unicorns are also well represented in the finance and media sectors.

Where are the most unicorn companies?
When it comes to unicorn startups, Americans have a knack for getting it right.

The sheer volume of companies in the USA and China no doubt plays a part statistically, as there are almost 30 million small businesses operating in America1. Small businesses make up 99.9% of companies in the USA, meaning that the 703 American unicorn startups (significantly more than any other country) account for just 0.01% of USA businesses.

China also produces an impressive number of unicorns. However, with 206, it has more than two thirds fewer than the US.

Specific areas within each country can also make a difference. For example, Silicon Valley, a hub for technology and innovation, has founded 31 unicorn startups over the years, including giants such as Uber and Airbnb. With most successful unicorn startups focusing on software development, areas like Silicon Valley that dominate the tech industry are ideal locations.

How does the UK stack up?
Although the UK produces far fewer unicorns than the likes of China and the USA, we’re doing very well in the grand scheme of things, sitting in third place globally.

A report from London Tech Week 20192 by Tech Nation and dealroom.co reveals that in the past 12 months 13 UK companies have reached unicorn status; that’s more than one a month!

Much like Silicon Valley, London has become a hub for unicorn startups, with 45 unicorns created in the City. Not that the rest of the UK has been idle: Cambridge, Oxford, Manchester, Leeds, Bristol and Edinburgh have each created multiple unicorn startups.

Data on unrealised unicorns (businesses that have reached a valuation of over $1 billion without yet selling the company) provided by dealroom.co show that the majority of current UK unicorn startups focus on finance, with growing interest in artificial intelligence. This follows the same pattern of unicorns across the globe.

Notable companies that are expected to reach unicorn status in the future include hotel booking service Secret Escapes, energy supplier Bulb and Fintech disruptor Atom Bank.

What makes a good unicorn startup idea?

1 They fill a need
When creating your own product or service, it’s easy to get carried away believing that your product is the greatest on the market. The problem is that if nobody wants what you’re selling, all your efforts will have been in vain.

Entrepreneurs succeed when they study the wants and needs of the general public, putting their own preferences to one side if it doesn’t fit with what customers want. Blockbuster, for example, believed that Netflix was ‘too niche’ to succeed. Back in 2000, the CEO of Netflix offered the former CEO of Blockbuster ownership of Netflix for $50 million. Blockbuster declined and went bankrupt whereas Netflix is now worth billions.

The companies that become unicorns are those that have ideas that will be useful to everyone, regardless of country, meaning they won’t struggle when looking to expand internationally.

2 They listen to the right people.  Like all things in life, there are people out there who are more experienced and have better ideas than yours. If someone with a proven track record is willing to take the time to give you advice, you should take it. Successful business owners recognise the right people to listen to, whether it’s bigpicture advice or simply tips to help with fundamental day-to-day operations.

3 They are focused, committed and motivated

Anyone can come up with an idea – maybe even a good one – but it takes a different breed to follow it through. No company became a unicorn with a founder who quickly lost interest or fell at the first hurdle.

Steve Jobs pushed a couple of risky products in the ‘80s that didn’t pay off and was subsequently forced out of his own company. He returned years later as CEO after Apple bought his new company NeXT Inc.

The reason unicorns succeed is that their owners are motivated enough to stick with their ideas through the hard times until they eventually see the fruits of their labour.

4 They are flexible and able to adapt Sticking by your project doesn’t mean you shouldn’t let it evolve. Consumer trends can change as easily as the weather, which is why businesses need to keep a close eye on their customers’ habits and be able to adapt quickly to change.

Before forming social media giant Twitter, Evan Williams founded a podcasting platform called Odeo. When the iTunes store announced that it would host podcasts, Odeo became obsolete. Rather than giving up, Williams dusted himself off and started again.

No unicorn startup gets it right from the get-go – they evolve with their market. Putting your pride to one side and admitting when you’re wrong is the first step to getting back on track with your business.

5 They value quality
No one ever made $1 billion by selling a shoddy product. The whole premise of unicorn businesses is to create a quality product that people across the globe want to buy. If your product falls apart or your software frequently crashes, there’s no chance of expanding and gaining more custom.

6 Their scope is global
The reason why unicorn startups make $1 billion? They think big. Trading internationally isn’t a new concept; in fact, it’s how businesses become unicorns.

If you’re looking to sell your services globally, other countries and cultures should be at the forefront of your considerations, even if your ideas are still in conception. If you’re hoping to sell gin worldwide, you’re not going to make many sales in countries that prohibit alcohol. Even something as small as your company name could have ramifications. American tissue company Puffs didn’t do so well in Germany where the term ‘puff’ is slang for a brothel.

Final thoughts
As businesses have a 0.00006% chance of becoming a unicorn3, it’s understandable that joining the ranks may be daunting. However, it’s clearly not impossible.

By following the trends in Unicorn startups, you’ll give yourself the best chance of hitting the incredible milestone. Whether it’s creating software in a more favourable market, like fintech or artificial intelligence, or simply having a good head for business and adapting your product to fit your market and expand globally, your startup could be the next name to join the ranks.
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1 US Small Business Administration Office of Advocacy.
https://www.sba.gov/sites/default/files/advocacy/All_States.pdf

2 Tech Nation, Unicorn Update, London Tech Week June 2019

3 First Round Review https://firstround.com/review/Theres-a-00006-Chance-of-Building-a-Billion-DollarCompany-How-This-Man-Did-It/

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