Unicorns are often criticized for being high risk and offering little in return to investors. So how do you create the right kind of unicorn?
December 27, 2020 6 min read
Opinions expressed by Entrepreneur contributors are their own.
For the past decade, the hunt for unicorns — privately owned startups valued at $1 billion or more — has been an obsession for many investors and founders and the media. Recently, unicorns have come under fire for being high-risk and offering potentially little in return. We’ve learned through the years that high valuations can be meaningless; just because a founder has convinced investors to part with their cash, doesn’t mean they can run a successful and profitable company.
So how do you create the right kind of unicorn? What does it take to build a scalable, successful business — even during an economic crisis?
Here are five key strategies for making your startup a success.
1. Help employees see the company as their own
Providing employees with an opportunity to share directly in the company’s success through stock options gives them pride of ownership. It encourages employees to feel motivated and productive because they actually have a vested interest. The more that people think of the company as theirs, the more they do what is right for it. When everyone has skin in the game, you can create a culture based on the collective good and eliminate individual interests and agendas that take away from overall company health.
Related: How to Recruit Employees With Equity
2. Be honest and transparent
Establishing transparency is key to creating a positive company culture and solidifying employee loyalty and engagement. If you hire smart people and stay open and honest with them, they become more invested in the organization’s success. Leaders can act with transparency by keeping employees in the loop regarding company matters, big and small. In fact, employees should have access to all company information, including board decks and financials. As boring as board meetings may be, I encourage our team to attend them and voice their concerns or opinions. It’s not only their right but also their obligation. I’ve always believed that when a team member thinks there’s something we can do better — whether in their scope or not — they should say so. A distributed decision-making framework is ideal for growing companies as no one at the top or center can see everything.
Related: Employee Engagement Has a Direct Link to Successful Business Outcomes
3. Find the right people to build with you
The companies I’ve always admired are those that maintain a strong culture and continue to attract great talent. Working with people who like to (and know how to) build something from the ground up is important. When starting our company, that was our overarching goal, and I always look for people with that mindset.
A few things to consider when hiring:
Match talent, regardless of hierarchy, to the most critical challenges. While employees need managers to give direction and provide goals, aim to hire smart, independent people who are not afraid to push boundaries.
Hire a group of people with diverse backgrounds who share common values. Most important is a workforce with a diversity of experience, diversity of thought and diversity of skill. Bringing together a group of people who think differently will enable your organization to benefit from the advantages that each individual brings.
Hire “10x people.” Some people are able to do 10 times more than others, and it’s not because they have 10 times the time at their disposal. It’s because they make fewer mistakes. They focus on the important pieces of the business. If you can pay a little more to get those 10x people it’s worth it. Recruiting very talented individuals allows your organization to maintain a culture of excellence. As a side effect, it allows you to follow a high-revenue, low-spending formula.
Related: Top Employee Hiring Trends to Watch Out in 2020
4. Build sustainable profits at a reasonable speed
While growth is important, it shouldn’t happen at all costs. Having a clear, near-time path to becoming cash-flow positive is essential. Whether you choose to pull that lever or not, having the option of not needing more outside capital allows you to command a higher valuation.
Having gone through this process with our company, we’ve developed some key learnings. Our contemporaries may take a different approach, here’s what we know.
A high average sales price is important: We sell to relatively few customers, but we sell a lot to each. This allows us to maintain high levels of revenue while employing fewer salespeople.
Profit dollars matter more than the deal size. It doesn’t matter how big your contract is, what matters is how much profit you take home from the deal. A $2 million deal with 20% gross margin and a $500,000 deal with an 80% gross margin are the same. More dollars flowing in is what matters, how big the deal is doesn’t.
Hire the right people. As mentioned above, a 10x person may demand a higher salary, but they may also be able to get a lot more done. Less overheard allows your organization to stay agile.
5. Stay focused.
Maintaining a sharp focus is critical when building a successful company. With so much to do, focus is the only advantage a startup has over a large corporation. Often, this means knowing what not to spend time on. Make intentional decisions about the opportunities you’ll pursue, and be sure you understand your customer base.
There’s no magic formula that will guarantee the type of growth my company has experienced thus far, and how founders and investors predict whether an idea will translate into a billion-dollar company remains a billion-dollar question. With so many factors involved, many things remain out of our control. But focusing on the aspects of your business that you can control, investing in people who will stand behind your company, and building a culture around trust and transparency can certainly kick-start your journey to success.