Startups

The Best Conditions For Building A Unicorn

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Tom Jacobs

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Tom Jacobs is CTO at Kepler Analytics.

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If you were looking to build a company, and you were looking to build a unicorn, what conditions should be present for the best chance of success?

Based on current unicorns, your best chance is to start a business that is revenue-growth based, rather than user-growth based. It has to move money from day one. The few intense user-growth startups are all in the same business — self-promotion¹ — so unless that’s your business as well, just move money. It must have people paying, and happy to be paying regularly.

Startups like Uber, Airbnb, SaaS companies, hardware companies, all start moving money from the day they ship. It sounds obvious, but unless your users are showing themselves off, they should be paying. As well as being willing to pay for your product/service, they must already be spending money on this area in their life. Money has been coming out of their wallets for a current need or want, whether they’re happy with this or not. But in either case, they’re very aware of the fact that they’re at least semi-regularly spending on it.

You next need to decide which side of the luxury divide the spending falls on. Either people really enjoy already spending this money, or they hate it. I want my rent to be cheaper, my bank to be fee-free and my transport to be super cheap. I don’t want to spend money there. But, luxury flips this around. I want my phone and my laptop to be blinged out and expensive and my dining-out experience to at least have a price indicator of quality. You should know on which side of this big division in mentality your product sits.

And here’s where it all comes back to our Silicon Valley roots. There must be a crazy new way to offer the new way of satisfying that want or need that was just not possible to do even last year. In other words, what’s the new tech that just came out that makes your severe competitive advantage now possible?

Tech is advancing amazingly fast. None of these unicorns would be possible with the slow CPUs, slower Internet, or the slow embrace just a few years ago of consumer technology. These companies are built on the things that just became widely distributed last year, whatever they are each year. Some big things that will likely be widely distributed soon are global Internet access, $9 computers, self-driving cars that are zero-cost to run, self-powering houses that are zero-cost to run and zero-friction computers². So, what’s now possible once these start to become widely distributed?

Speaking of the newfound comfort consumers have now with technology in their daily lives, your new product/service will either supplant an existing user behaviour, or create a new one. Creating a new behaviour is rare, but it has happened, such as the case with the amount of time people now spend using social media.

Before, that time was just idle, real-world chatting, phone calls, or watching TV. So it’s much more common and easier to get people to just swap an existing part of their day with your new way that does the same thing better — as long as your new way is incomparably a better way of doing that same thing.

The only ways to make something that much better is either through using newly distributed technology or, at least, taking a radically different approach. You’re not going to build a better word processor by making the buttons at the top look nicer. You’re going to build a better word processor where you just speak to your computer — Her-style — and it works every time. This just wasn’t possible before, and soon will be.

And once you’ve got your idea nailed, really the most important thing of all comes into play. You and your team have to be competent, experienced and open-minded. You can pick the best idea and approach, be on the right road, and it can still just all collapse at any point for most likely an unexpected reason. So you have to have persistence, vision, passion and the ability to roll with the punches.

¹Why only a small chance of creating a unicorn based on incredible user-growth with no revenue growth? A lot of the top unicorns have done the just incredible user-growth with no revenue-growth story: Facebook, Instagram, Twitter, Vine, YouTube, Snapchat. But I’d argue that these all come from the same underlying motivation. People just want to create and show off. That’s people. And now for the first time in history, they can at a large scale. All those startups are riding the same wave; they’re all in the same industry: self-promotion.
²The iPhone is pretty low friction. Easier than reaching for your laptop. The Apple Watch is pretty close to zero friction.

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