In the world of magic, unicorns are rare and mythical horned beings that have only been seen by legendary storytellers who claim to be in the right place at the right time. 

These days, the legend has disappeared, and you can find unicorns in the pages of any startup or business magazine. In today’s world, the word unicorn is tossed around the startup scene more often than at a Harry Potter conference – and every new startup hopes to one day earn the title. Being referred to as a unicorn startup is a dream by many entrepreneurs, but what does it even mean? 

While there are very few physical commonalities between the mythical unicorn and a unicorn startup, they both share the quality of being rare. Over 627,000 startups launch in the U.S. each year, but there are only 449 total unicorns in the world. 

What does it take for a startup to grow its horn? In this post, we’ll examine what it means to be a unicorn company and explore the essential steps of becoming one. 

What is a Unicorn Startup?

A unicorn startup is a privately-held company with a valuation of more than $1 billion. Aileen Lee, founder of Cowboy Ventures, coined this term in 2013. When she used the phrase, unicorns were uncommon, and only a small handful of startups even had hopes of reaching this level. 

Not even a decade later, unicorns have become more common. With innovative solutions continually being developed and competition growing between venture capital firms, the valuations of fast-growing startups have become more substantial. Some solutions have reached this level without even generating significant revenue. For this reason, becoming a unicorn is no longer a marker of success; even some fast-growing startups fail over the long term. 

Characteristics of a Unicorn Company

Unicorn companies exist over a variety of industries, built from entrepreneurs of all backgrounds. While there is no formula for becoming a global startup, there are a few qualities that all successful startups share. Some of the most common attributes of a unicorn company include: 

  1. Innovative Solution: Companies that reach the top do so because they introduce new innovations that critically disrupt the effectiveness of solutions already on the market. They are first movers that provide products and services that work faster, more effectively, and differently than competitors. Since they are early to market, they are often able to gain the eye of the media and quickly establish brand awareness across their entire market.
  2. Rapid Growth: Triumphant startups test and validate their solutions quickly, pivoting until they find their path. Once they identify the right road, they put the pedal to the metal and accelerate quickly. Rapid growth doesn’t necessarily mean that they generate revenue quickly. Instead, they have one or several growth metrics that prove their potential. For some businesses, this means that they build a broad base of millions of free users. Other companies may have above average engagement rates or a high conversion rate. No matter what growth factor makes them unique, all unicorns have an incredibly high metric that outpaces the competition.  
  3. Ability to Quickly Monetize: Investors invest because they want to realize a healthy return. The more potential a startup shows for creating massive revenues, the higher it will be valued. Even if a unicorn has not yet monetized its solution, it has an effective monetization plan in place. For example, take a dating app that has attracted a million sign-ups and now has the potential to convert users into paid customers. Although they aren’t currently earning revenue, just having a strong foundation for future monetization drives a much higher startup valuation. 
  4. Talented Team: Anyone can ride a horse, but only a master can saddle up a unicorn. When valuing a company, investors look for skillful teams that have experience and display a knowledge of how to launch a startup. While the company may have started with inexperienced founders, they have brought in new members to strengthen their position. Unicorn teams display the ability to scale the solution rapidly and have a vision for the future. Not only are they experienced, but they are also committed and solely-focused on bringing the business to success. 
  5. Consumer-Based Solution: Businesses don’t have to be direct-to-consumer to earn a valuation of $1 billion or more, but b2c companies are statistically more likely to become unicorns. There are many extraordinary b2b companies, but those that can generate interest from millions of end consumers are often valued higher. 

Popular Unicorn Companies

There are hundreds of unicorn startups today, spread across many industries. Here are a few notable unicorns that have launched in the last few years, disrupting their markets and growing to a billion-dollar value. 

RobinHood

RobinHood is an app-based stock brokerage that allows users to buy and sell stocks. The company launched in 2014 with the hope of appealing to a demographic of millennials who were increasingly turned off by traditional trading. 

Streamlining the way people invested in stocks, Robinhood was able to grow its user base to over 2 million users in only three years. By 2017, they had already executed $75 billion worth of transactions. Further monetizing, they introduced Robinhood Gold, giving users the ability to borrow money for stocks. In only 36 months after its launch, the company reached a valuation of $1.3 billion, cementing its status as a unicorn startup. 

Instacart

Other grocery delivery apps exist, but Instacart was the first to earn significant market share, gaining an industry-leading position early on. As of 2018, the company was valued at $7.6 billion. 

Instacart, which first launched in San Francisco, grew rapidly to serve more than 15,000 grocery stores with a reach across 70% of the country. By 2018, they had over 50,000 independent shoppers serving over 500,000 grocery customers. 

Airbnb

Airbnb launched in 2008 and quickly overtook the room-booking market. Initially, Airbnb was just a way for the founders to make a few extra bucks to pay their rent that month. They took advantage of an opportunity and offered a sleeping mat in their loft to attendees of an upcoming design conference. After proving that people would pay for these accommodations, they began building the business. 

Today, Airbnb is worth an estimated $38 billion. In only 12 years, the company has completely redefined the market and built its customer-generated listings to over 6 million properties worldwide. 

Casper

Casper launched in 2014 as an online bed-in-a-box supplier. By 2015, they were already gaining steam, and by May of that year, celebrities like Kylie Jenner were posting about the company on their social media pages. Today, only six years later, Casper is worth over a billion dollars, and rumors of a soon-to-come IPO are swirling. 

Even early on, Casper had all the makings of a unicorn company. On the first day their website launched, they sold out of their complete starting inventory. Although they hoped to make $1.8 million within a year, they were able to hit the goal within only two months. By 2018, the company was earning over $400 million per year. 

Lemonade

Lemonade launched in 2015, hoping to disrupt the insurance industry – and they did just that. Using a mobile application and sophisticated algorithms, Lemonade makes the insurance process more efficient than ever. They give insurance quotes in only 90 seconds, and process claims within 3 minutes. Although Lemonade hasn’t yet put a dent in the overall insurance market, they appeal to a niche market of millennials who are purchasing homeowners or renters insurance for the first time. Today, over 75% of their customers are under the age of 35. 

By 2017 (only two years after launch), Lemonade was already serving 425,000 customers, with over $57 million in total annual revenue. During that year, the company’s valuation was over $2 billion. 

How To Become A Unicorn Startup

Here’s the truth – even if you know the exact steps required to reach unicorn status, your chances of actually reaching it are meager. Statistically, the chance of building a company worth $1 billion is only 0.00006%. However, companies that reach this level often follow a specific process. Here are five things companies must achieve on their way to the top: 

  1. Solve a MAJOR Problem: Entrepreneurs solve problems, but founders of unicorn startups solve significant challenges for millions of consumers around the world. Standout startups disrupt established industries and create considerable competition for market leaders, some of who have been on the top for decades (such as large hotel chains before Airbnb). By approaching a substantial issue in a new way, they quickly earn market share – even in highly saturated industries. 
  2. Pivot Quickly: Many businesses don’t start with the same idea that propels them to unicorn level. Growing a successful startup takes frequent testing, learning, and pivoting. Fast-growing startups test their hypotheses quickly and use those tests to adjust their offering until they find the right solution.  
  3. Strengthen the Team: Billion-dollar companies are led by experienced teams who can foresee future opportunities and avoid potential threats. Inexperienced founders must eventually surround themselves with experienced team members who can guide them to make the right decisions as they scale. 
  4. Raise Funds: It takes money to fuel billion-dollar growth. Startups that reach this level build strong investor relationships and have constant access to capital. With the right startup, this financial arrangement is mutually beneficial. Investors desire to put their money in fast-growing vehicles where they can earn a high ROI. As they invest more money, their equity percentage rises. When it’s time for an exit, their investment pays off many times over. 
  5. Scale Like Crazy: The most essential but most challenging part of becoming a unicorn is scaling like crazy. Unicorn startups are often able to penetrate multiple markets and build brand awareness across the globe. Showcasing the potential for multimarket penetration is extremely valuable to investors. As you generate more users across more markets, the value of your company will increase in parallel. 

The Last Word On Becoming A Unicorn

Here’s the thing about becoming a unicorn, if your only intent is to become a unicorn, you probably never will. Entrepreneurs who take over an industry don’t do so because they are focused on reaching a billion-dollar value; it happens because they are super passionate about providing a new solution that genuinely helps consumers. If you want a significant valuation, solve a big problem for a big number of people.