What makes a startup a unicorn?

Unicorn — the elusive mythical creature that has become a catchword within the global startup landscape, and with good reason! An entry into the unicorn club not only validates a startup’s business model by giving it the much-desired stamp of success, but also underlines its value proposition in the eyes of investors.

A unicorn’s brand grows in both visibility and operational outlay, which leads directly to greater business opportunities for the organisation.

No wonder, then, that almost every upcoming startup and entrepreneur today aspires to gain an entry into the prestigious club.

But what does it take to truly make a startup into a unicorn? While the answers might differ from use-case to use-case, there are certain common factors that play a key role in determining whether a startup has what it takes to kick on to the next level of its evolution.

One of main factors behind the growth and success of each and every unicorn is the disruptive impact it has on its chosen market. Consider the example of on-demand taxi aggregator Uber.

By using smartphones as a medium to connect consumers with their nearby cab drivers at the touch of button, the startup has completely revolutionised the way taxis are hailed across the world.

But disruption is not the only reason that has driven the massive success that the company continues to enjoy. It is equally important for startups to add value for all key stakeholders in the entire business chain.

Uber not only made booking a cab booking more convenient for the end-user, but also heralded more operational efficiency for cab drivers and taxi service providers by helping them optimise their revenue streams.

As a result, the company has today established its niche as the most successful unicorn with a current valuation of $62.5 billion.

However, while creating disruption is important, it is just as vital for startups aspiring to the title of a unicorn to analyse the markets they are operational in.

Creating disruption in a small market segment might be easy, but it will not generate the impact that is needed to propel a startup onto the global entrepreneurial limelight.

Entrepreneurs must therefore analyse their target markets well in advance before aiming to make their startups into the Next Big Thing in the startup community.

A prime example of the difference market size can make to a disruptive startup is Airbnb. Founded as an alternative lodging solution for business travellers, the company soon pivoted its approach to target the much larger global hotel industry, which is currently worth $550 million.

This massive business opportunity has been one of the primary reasons behind the rise of Airbnb as a leading unicorn with a presence in over 190 countries across the globe.

While rapidly evolving technology and increased investor interest has improved the access to funds for startups and cut down on the time required to achieve the coveted status of a unicorn, an entrepreneur must not depend solely on capital investments to drive the growth of his or her venture.

The focus, instead, should be on building a differentiated business model; external funds should act only as a catalyst to prove the validity of the idea and the product to its target audience.

This provides startups the time to refine their business approach and identify the optimum balance between sustainability and growth. Moreover, with fewer stakeholders involved, startups also keep greater control over their future vision as well as everyday operations.

Ex-PayPal CEO Elon Musk’s latest unicorn venture, SpaceX, is the perfect example of this approach. Founded with the ambitious aim of making commercial space travel and interstellar colonisation a tangible reality, the company has been built by Musk with his own capital as well as that of his venture investment firm Founders Fund.

With the company already winning contracts from the likes of US space agency NASA and the US Air Force for its disruptive technologies, SpaceX has been grown into a $12 billion industry player despite having raised just $400 million in investments over the course of its 15-year operations.

Once a startup starts gaining traction in the market, growth becomes inevitable. This growth also comes associated with greater business opportunities. The key to establishing a unicorn startup lies in identifying and tapping into these favourable opportunities.

This helps the venture in adding the key skills required to augment its growth curve. Paytm, which had started out as an online payments service provider, ventured into online-to-offline commerce by acquiring Near.in , a hyperlocal service provider.

This allowed it to complement its existing payments business by adding an e-commerce led aspect to its business model.

What also often plays a huge role in achieving the title of a unicorn is the market segment startups are operating in, and the fact that their operational vision remains focussed on their long-term end-goal.

US-based Palantir Technologies capitalised on rapid innovations in the fields of artificial intelligence, data analytics, heuristic machine learning and pattern recognition during the mid-2000s to drive its growth.

The company also famously denied any future plans to go for an initial public offer in order to maintain its focus on intelligence augmentation and big data analytics. Today, Palantir Technologies is worth $20 billion and is counted amongst the most valuable private technology companies in the Silicon Valley.

The writer is the co-founder and president of Venture Catalysts

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