Have you noticed those unicorns outside your office? Recently, there’s been an uptick in the all-important $1 billion “unicorn” valuation for startups in the tech industry. In the VC-funded startup community, the young companies receiving such valuations are in the media daily.
When an entrepreneur considers her unicorn counterparts, it’s not hard to see why she might start looking for majestic horns at the head of her own business. However, it’s important to remember that the factors that make for a successful startup business do not necessarily include a glitzy price tag. Like the more common (but seriously impressive) racehorse, promising startups can predict their competitiveness based on other factors: pedigree, support from trainers and jockeys, physical strength, and the hunger to run – fast.
Here’s the thing about billion-dollar valuations: they’re heavily based on the success of comparable companies and investors’ desires to make money. Unicorn-like dollar signs can keep other startups out of the company’s space and raise enough eyebrows to keep industry value on the rise. The people responding to these valuations are a major motivating factor behind the lofty assessments in the first place; big numbers, like big horns, impress the right people, but they shouldn’t distract entrepreneurs from valuing the other metrics that are as relevant in today’s landscape as they have always been.
Public markets have shifted heavily in the last decade. For many reasons, the days where an IPO was the only sign that a young company was ready to shift into being a dependable, viable player in its industry are gone. Now, to send the message to employees, customers, and investors, many companies are expanding their reach and generating the same buzz by projecting the vote of confidence that comes with getting a massive valuation. With substantial capital at hand, as well as the credibility of being a unicorn, it is possible for an emerging business to go through its early growth years entirely as a private player.
More notably, because of these factors, many of the companies hailed as unicorn startups shouldn’t be considered startups in the first place. Several have been around for some time; they’re private companies that became larger, more substantial businesses. Instead of going public, as was the trend 10 or 15 years ago, these organizations opted to remain private to keep building that value. There’s no reason for other entrepreneurs not to look at the “unicorn” list and take some lessons from the men and women that gradually created these companies and stewarded them to their current value. Their valuations aren’t signs that the unicorn label is essential, though.
Startups need to keep their sights set on the same things they always have to keep their value on the rise. The combination of a well-crafted team, a sustainable business model, and a product that appeals to a wide audience has changed the market in the past, and it will do so many times in the future. Business fundamentals don’t change, regardless of what the market does with valuations. It’s easy to forget this when yet another startup reaches unicorn status. We’re all enthralled by magical creatures, but in a field dotted with unicorns, startup thoroughbreds can also keep pace – and win.