Introduction

According to PitchBook, there are more than 1,434 active unicorn startups today, out of more than 150 million startups worldwide. While only 10% of startups will succeed in becoming established companies that generate revenue, a far smaller number of startups will scale so strongly that they become unicorns.

However, the good news is that it’s becoming increasingly accessible for startups to reach unicorn status, even when resources are initially limited.

It doesn’t matter what size your startup is or the industry you want to disrupt; any company can scale to a unicorn startup these days. With the help of technology like AI, startups can achieve more with less.

“In the next few years, we’re going to see our first unicorn with one employee,” said Mark Roberge, co-founder at Stage 2 Capital and host of “The Science of Scaling” podcast.

Could your startup become the next unicorn? Here’s how the most successful companies have scaled to $1B valuations and beyond.

What makes a unicorn company

A unicorn startup is a privately held company with a valuation of at least $1B.

Why the term unicorn? Well, with the slim chances of earning that high of a valuation, it can feel as much of a myth as seeing a unicorn.

 

Part of becoming a unicorn can simply come down to luck. However, it’s not impossible to become a startup worth $1B or more. Ultimately, it depends on finding the right product-market fit, prioritizing your consumers, and demonstrating to investors that you are the right company to solve a specific problem.

These factors will provide you with the resources to scale and meet high market adoption and demand with an innovative, disruptive idea that solves a problem.

What makes a unicorn different from regular startups?

Startups have up to a 2.5% chance of becoming a unicorn, according to a study by AngelList. So, what traits do these highly valued companies share that make them more likely to succeed compared to other startups?

 

While each startup’s journey is unique, there are certain characteristics and practices that are shared among companies that become unicorns. Read on to learn how unicorns stand out among other startups.

1. Disrupt the industry

Industry disruption is a key ingredient in becoming a unicorn startup. Without an idea that completely shifts an industry, you may still find success, but it could be harder to stand out from competitors and reach that $1B goal.

Some of the largest startups that have become unicorns are now household names. For instance, look at Uber, Airbnb, or DoorDash. Each of these companies developed disruptive products that completely revolutionized how we travel from point A to point B, book vacations, and even get dinner on the table.

Disrupting an industry is not easy, and it requires creativity, experimentation, and adaptability to transform an idea into an actual disruption. For instance, you’ll need to test your initial product or service among your target audience and make adjustments based on feedback and market changes to ultimately build the most useful and disruptive product or service in your industry.

Also, pay close attention to your market. Look for a niche or gap where you can tailor your offering to meet the needs of your target audience. This process allows you to stand out from others in the same field and offer more targeted solutions, which contribute to boosting demand and getting you closer to unicorn status.

2. Put customers first

The customer is always right is a long-held motto for a reason. When you listen to the honest feedback from your customers, whether it’s your first client or your 1,000th, you can constantly improve upon your product and processes.

Ensure that you incorporate numerous opportunities to collect consumer feedback, such as offering a survey at the end of sales representative calls or chatbot interactions, and asking for reviews after purchases. In the early days of a startup, using a founder-led approach to receive feedback is also useful for building company credibility and earning consumer trust.

Once you’ve collected multiple forms of feedback, analyze the responses to find weak points and strengths in the business. Continue to play up the strengths, but iterate and retest on weaknesses until they become strengths as well.

3. Adopt and innovate technology

From a comprehensive CRM to helpful SaaS tools, founders should incorporate the latest technology into their businesses if they want a better chance of becoming a unicorn.

If you’re not early, you’re late. Currently, startups should be exploring innovative ways to incorporate AI into their businesses, while also anticipating the next major technology trend.

Adopting early helps startups stay ahead of the curve and prepare for any market shifts that may arise from the latest technology.

Don’t be afraid to introduce innovative technology. Early adopters of new tech can easily determine its strengths and weaknesses to build their own innovative products — just look at how many companies are joining in on the AI boom.

4. Improve efficiency and productivity

Improving efficiency and productivity can go hand in hand with the adoption of technology. Startups need to be able to maintain a lean budget, reduce spending whenever possible, and still scale to meet growing demand, and technology can help you do that. Just make sure to strike a balance between adopting new technology to speed up operations and becoming bogged down with redundant tools and extensive tech training.

5. Maintain a growth mindset

To achieve a $1B valuation, you must prepare for rapid growth. Even startups with traction risk failure if they can’t scale quickly enough to meet demand. The process can be surprisingly quick — as Crunchbase reported, a startup today could reach unicorn status within about 6.6 years.

Chart source: https://www.linkedin.com/in/ilyavcandpe/

Setting a company vision for growth can inspire the entire team to work toward this shared goal. Providing the tools and resources for efficiency and productivity will also push the team to scale as demand grows without missing a beat. It will be crucial to have a plan for funding, ensuring you always have the necessary resources to increase output as the company's value grows.

6. Harness the power of investors

Investors are key to becoming a unicorn company, whether you bootstrap, crowdfund, or seek VC funding. Fundraising can be a lengthy process, so it’s important to keep that in mind alongside your growth mindset to prepare for scaling.

Founders could take hundreds of meetings with investors before securing funding, so start organizing and reaching out as soon as you have a minimum viable product and traction to impress potential investors. Refine your pitch deck and study your startup’s numbers.

Even if an investor says no, don’t be afraid to ask for feedback and additional connections to other investors. These networking skills can help you reach the right investor more quickly, which will be essential if you want to scale to a $1B valuation.

How to become a unicorn: a checklist

So, you think you have what it takes to become a unicorn — that’s great! That mindset alone is a key component to becoming another startup success story.

Now it’s time to put your skills to the test by following this unicorn startup checklist for scaling to reach that coveted $1B valuation.

1. Develop a unique business model

Many startups can generate some revenue using a typical business model, but developing a more unique model is what separates unicorns from other startups.

First, you’ll need to have laser focus on your market and what you’re selling. According to the Hypergrowth Startup Index Report, startups scaling to unicorn status are those that narrow their market focus rather than trying to appeal to a broader audience.

“The most counterintuitive decision we made was to deliberately shrink our market focus. Many thought we were crazy, but this focus was crucial,” explained Varun Anand, co-founder of Clay.

To reach that narrower market, startups need to niche down to fill a specific gap in the target market. Solving a specific problem will help you focus. Knowing how your startup specifically addresses that problem will be crucial in demonstrating to investors that you are worthy of their funding.

From there, outline how you will market and sell that product to the appropriate audience. This process will require some trial and error, alongside user feedback, which you can use to determine the most effective methods for marketing your product to users who need it.

Ultimately, the time investment at this stage will result in a more refined, unique, and high-performing business model that is ready to scale as the business expands.

2. Find product-market fit

Product-market fit is one of the most important elements to building a successful startup, especially one that reaches a $1B valuation. Product-market fit refers to the point at which a startup confirms that its product effectively meets a specific need in its target market. The fit is so exact that customers are ready to pay for the product.

Product-market fit is yet another metric that startups must collect feedback and iterate on to get right. Initially, your first product will likely not be the final version that drives you to $1B. But you can refine it based on customer retention rates, user feedback, adoption speed, and market changes to ensure the right fit.

3. Secure investment(s)

Whether you’re seeking angel investors for pre-seed funding or you’re preparing to pitch to venture capitalists for series funding, fundraising is an essential part of running a startup. Funding helps startups cover rising operating costs.

Pitching to investors requires a clear, concise pitch deck that will show your startup’s product-market fit, explain how and why your company will solve a specific problem, show the traction your startup has so far, explain how your company will utilize funding to scale sustainably, and project future revenue. Keep in mind that you’ll need to refine your pitch deck and presentation, conduct outreach for potential VC meetings, and run the startup all at the same time. Consider these tips to better prepare for the fundraising process.

Even in the early stages of a startup, it’s still important to build an exit strategy into the fundraising process. While you may seek an initial public offering (IPO) once you become a unicorn, the Hypergrowth Startup Index revealed that more startups are pursuing mergers and acquisitions (M&A) over IPOs. M&As account for 43% of the exit landscape, compared to IPOs, which comprise 6%. As such, be sure to consider all options, from buyouts to IPOs, when building an exit strategy.

4. Build a high-performance team

While startups may run with just a founding team and some contractors in the early stages to save money, founders need to think ahead to what the hiring process will look like, too.

So, how does a cash-strapped startup attract and retain top talent? Where will you source high-performing employees? How will you compensate them?

First, you can speak to colleagues, fellow founders, and mentors for recommendations on who to hire before you hit the job boards. Then, you can widen your reach by utilizing social media or even contracting a talent recruiter to help find the best matches.

Then, it’s time to consider how you will pay employees. As a young company, many compensation models can allow you to recruit experts without causing your burn rate to skyrocket. Most importantly, pay competitive and fair salaries. Additionally, consider offering other incentives, such as healthcare coverage, equity options, and paid time off to strengthen the deal. Hybrid and remote work, strong company culture, and mentorship opportunities, as well as career development and leadership opportunities, can also help attract talent.

By building a strong compensation package and company culture, you’ll be prepared to hire top talent from the first to the hundredth employee and beyond.

5. Scale rapidly and sustainably

With your vision for growth set, your product-market fit aligned, and the proper processes in place, your startup is poised to pursue quick, yet sustainable, growth. One mistake you don’t want to make at this stage is taking on too much too soon. While rapid growth is a common characteristic of startups that become unicorns, it’s even more important to grow at a pace you can match.

At this stage, paying close attention to the company budget, cash flow, and burn rate is essential. Growth often means it’s time to spend money — more customers means it’s time to hire more customer representatives, expand manufacturing or product development resources, and upgrade your tech stack.

But don’t let all these costs get ahead of you. Before you know it, you could be spending far more than you have available from revenue and funding. Cash flow problems are a common reason that startups fail, so you want to pay close attention to ensure you’re moving the needle toward a billion-dollar valuation and not the other way around.

Notable unicorn startups

Of the millions of startups that exist today, only around 1,400 are considered unicorns. Through proper timing, experimentation, innovation, and growth mindsets, the following companies have discovered their unique products and processes, which have led them to $1B+ valuations.

Here are some of the highest valued unicorn startups today, according to the Hypergrowth Startup Index.

• OpenAI: By making huge strides in AI development and tapping into partnerships to allow more companies to make use of ChatGPT, OpenAI has become one of the biggest unicorns out there. Worth $300B, OpenAI continues to draw investor interest with its ongoing AI development. Its range of free and paid versions of its multiple AI products makes it widely popular among businesses and individuals alike.
• Stripe: Stripe, one of the highest-valued startups today with a valuation of $70B, makes taking payments easier for businesses of all sizes, whether online or in brick-and-mortar locations. While its useful product is a huge part of its success, Stripe has also implemented strategic partnerships to boost growth.
• Waymo: This startup, which has a $45B valuation, offers autonomous driving vehicle technology, particularly for ride-sharing. The company’s product is disruptive by providing driverless electric vehicles for fast pickup and safe, sustainable transportation.
• Gopuff: Valued at $40B, Gopuff has experienced rapid expansion thanks to finding the right niche. While there were delivery options for restaurants and grocery stores, Gopuff offered a unique solution by connecting consumers with convenience store deliveries. This has enabled customers to purchase a broader range of products for delivery, ultimately resulting in high demand and interest from investors.
• Epic Games: Video games have been popular for decades, so what makes Epic Games, with a $31B valuation, stand out? Part of it is a game with broad, global appeal: Fortnite. However, another significant component to its success is Unreal Engine, the company’s high-powered game engine that developers can utilize to build their own games.
• Canva: Canva, an easy-to-use graphic design platform with a $26B valuation, provides a solution for people looking to create graphics for everything from party invitations to social media posts. It includes a user-friendly graphic design builder with both free and paid versions, making it suitable for personal or professional use, with no prior design skills required.

Key Takeaway

By following this checklist, your startup may or may not become the next unicorn.

But becoming a unicorn isn’t the only measure of success. By improving your product, ensuring product-market fit, listening to your customers, and wowing investors, you can still deliver a useful product, impress clients and investors, and turn a profit.

As Thomas Koulopoulos, chairman and co-founder of Delphi Group, put it, “Be clear as to what your personal objective for the business is and build a culture that will support it no matter what its size.”

Whether you’re looking to launch your first product or are inching toward the $1B valuation milestone, check out the Hypergrowth Startup Index to keep your thumb on the pulse of unicorn startups in today’s market.

The data could just spark your next great idea.

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