Many software entrepreneurs share a similar dream with little children -- they want to be unicorns.
The unicorns that exist in the dreams of companies are just as rare as those that exist in fairy tales. Cowboy Ventures defines unicorns as U.S.-based software companies founded since 2003 and valued at over $1 billion by public or private market investors.
I spoke with leaders of three unicorns about their success and their advice for hopeful startups. Here are their tips on how to become a member of the magical and rare species:
Find new pastures
Unicorns are unique, and find new paths to explore.
This was the strategy Scott Dietzen, CEO of Pure Storage, an innovative flash storage company, used to bring the company to unicorn status. The company began by finding a large, ill-served market.
“In Pure’s case, we tackled the $100 billion enterprise data-storage market, in which the dominant product architectures are two decades old, and customer satisfaction with the legacy products is well below average,” Dietzen says.
The company next identified a disrupting factor that changed the game for those already in the market.
“For Pure, this was the transition from mechanical disk-based storage to solid-state flash memory,” he says.
The next step is to create a recipe for success that others try to copy.
Next, “identify a disruptor that changes the game on the market incumbents and craft a recipe for disruption that others will strive to copy,” he suggests.
Darrell Cavens, CEO of Zulily, an online retailer that curates a new selection of products each day, agrees that to create a unicorn, startups must break from the pack and challenge traditional knowledge.
“We ignored many of the naysayers who told us that we had to operate by the current conventions in ecommerce in order to be successful,” he says. “We had a hunch that there was another way that we could do ecommerce and when we saw customer passion we went all in with it.”
Waze, the world's largest community-based traffic and navigation app, also reached unicorn status by looking at an old problem in a new way.
“Waze was a strong challenger of the traditional model of traffic analysis because we relied entirely on input from the community, not from road sensors or street cameras,” says Julie Anne Mossler, head of global communications and creative launch strategy at Waze.
Create magical connections with customers
To build a unicorn, the customer must hold the reins, driving major decisions and product development to meet their needs.
“Most of all, you need hugely delighted customers,” Dietzen says. “Customers can and should be your strongest advocates. They should teach you about the value that you've delivered to them.”
Listening to the customer was a major factor in the success of Zulily, Cavens says.
“We didn’t have a master plan, but we had an open mind about what we could do and when we saw that our customer was responding to the type of shopping we were offering, we continued to build the business around what she wanted,” he says.
Waze built their customers into the product from the start.
“We optimized the opportunity and the product so that users have a vested interest in its success -- and made it as easy as possible for them to spread the word to friends and recruit additional editors,” Mossler says.
Unicorns don’t just find investors, but they find the right investors for the business.
“Fundraise before you need the money,” Dietzen suggests. “That ensures you have the opportunity to weigh alternative investors to ensure the best fit in terms of culture and long-term aspirations. You should strive to avoid investors that will want to sell, and find the ones that are in it for the long haul.”
Once entrepreneurs find investors that are a good match, they must focus on their needs to get them on board.
“You also must be very, very good at explaining why your product and company are the right long-term, investment-protecting choice for those customers,” he says. “Put yourself into your customers shoes to best make the case that will appeal to your buyer.”
Groom for growth
The road to becoming a unicorn doesn’t end with funding. Entrepreneurs must plan for the scale of the business and keep up with the demands of a fast growing company.
“We have been averaging 400 percent annual growth since we entered the market,” Dietzen says. “You need to grow fast in big markets if you want to lead.”