An investor wouldn’t be much without a hefty amount of capital. On the other hand, at your average startup, money is typically tight. The formula is simple. Early-stage startups come to investors because they lack the resources they need to succeed. Investors then look for potentially successful startups in hopes of becoming a part of something big. While angels and venture capitalists may have developed an intimidating public image, investors are nothing without the startups they funds.
Just as many early companies need capital to execute the necessary marketing and hiring procedures to grow properly, investors need startups to sink their capital into.
Despite coming from completely opposite ends of the spectrum and seeking different goals through funding, investors and the startups they work with share the same common interest. Early-stage angel investors, venture capitalists, private stakeholders, entrepreneurs, founding teams, and early hires all want to be a part of the next billion dollar company.
Luckily, there are plenty of billion dollar unicorn startups around today to learn from. As of April in 2017, that’s a total of 193 startup companies valued at $1,000,000,000 or more. That being said, they’re still incredibly rare considering the total amount of startups in the world—or at least rare enough to be named after everyone’s favorite mythical creature. And while most of the unicorns today operate in a broad range of categories and industries, their success stories share many similarities and suggest some greater industry trends and transitions.
Find a Unique Problem
All startups generally come from a problem, but only the successful ones deal with a problem that’s truly unique. If you want to build a billion dollar company, you have to take on a problem that other people may not even know exist.
For years, human transportation worked just fine. While public transportation may not be perfect and cars aren’t exactly the most sustainable, humans didn’t necessarily have a problem getting around. That is unless you’re one of the founders of the popular ride-sharing app, Lyft. In that case, the current transportation system is filled with nothing but problems.
As opposed to removing the excessive amount of cars owned by individuals worldwide, the founders of Lyft wanted to put them to work in a way that benefits everyone. Despite being centered around an idea typically thought of as taboo and somewhat dangerous, ride-sharing is now ubiquitous in almost every major city around the world.
If there’s one major takeaway, work on a problem that most people aren’t interested in. In the short run, this is great because it means less initial competition for you. Startups are like good jokes: people are impressed the first they hear it time but typically lose interest as they’re repeated. Calling every new social media service that starts to accumulate some users the next Facebook is inherently un-Facebook-like. Facebook wasn’t created by trying to become the next version of whatever preceded it. The service was new, niche, and different from everything else on the market.
If you’re trying to build the next Facebook, you shouldn’t be paying attention to Facebook. The biggest startup opportunities are in areas where others simply aren’t looking yet.
Build Something Consumer Oriented
You can’t create value without attracting interest from consumers. Regardless of scale, businesses need demand to survive. If you want to generate a lot of demand, you need to attract a lot of consumers.
While there are some obvious exceptions from the enterprise industry, the majority of today’s unicorns are oriented towards solving consumer problems ranging from digital communication to future transportation. It’s definitely possible to build a successful startup by catering to existing businesses, but whenever you move away from the general public, the size of your potential customer base obviously begins to shrink. In a broad sense, building consumer oriented products gives you more opportunities to reach larger amounts of people.
Catering to a niche is vital to dominating a market, but it’s impossible to build a billion dollar company if the size of your niche is too small. The key to sustainable growth is identifying a niche you can take over and eventually expand. If you design something people love, everyone will want to use it.
Create a Platform That Benefits Other Businesses
Services like Facebook and Google may be known for the innovation they bring to the everyday person’s technological life, but the effect they have on other businesses is equally as massive and actually earns them the majority of their revenue. After all, business is business, and a massive audience doesn’t mean anything without proper monetization.
For many billion dollar startups today, this has translated to building a new platform for advertisers to reach consumers. As new tech continues to emerge and changes the way people interact with content on a daily basis, the world of digital advertising only continues to expand. When a service can attract a ton of users and get them to repeatedly view content using their platform, that creates a potential marketing opportunity. Depending on the size, quality, and makeup of the audience you attract, the amount of money advertisers will pay you to market on your platform will change.
Snapchat is a great example of a service that puts this old model into practice in a brand new way. Advertisers are extremely interested in Snap’s ability to rapidly capture millennial users and hold their attention for long periods of time. In this sense, it’s not so much that Snapchat has the biggest user base (as we all know it doesn’t) but that Snapchat has an incredibly high-quality audience. Not only do users come back the app almost every day, but they also spend an average time of almost 25 minutes clicking through stories and sending snaps to friends every time they use it.
Venture Into the Unknown
The current list of unicorns is great for predicting where the startup industry is headed and what investors will be looking for in the years to come. While it’s important to learn from the greats, most of the companies on that list made it there by betting against the odds and going in a direction not many people were headed. When it comes to building a billion dollar company, you can’t be afraid to tune out the noise and take a stand.