[YS Learn] 9 things that can give your startup a billion-dollar valuation
Google, Apple, Microsoft, Disney, and HP, all have one thing in common – they were all started in garages. Though they are now large corporations, these giants had all started small. The journey from starting up, growing, and becoming a big name with billion-dollar valuations is a dream for many startup founders.
Between 2018 and 2020, close to 20 startups achieved the coveted unicorn status in India. And while the current market conditions aren’t favourable, growth and scale are nevertheless an important part of a startup’s journey.
However, the highway to scale isn’t a straight road. Different directional changes come along the way and founders need to have the skills to navigate each bend, and these skills will differ from each directional change.
But there is no one way to define success and its metrics. While explaining this, TN Hari, Head of HR, BigBasket said in his webinar, ‘Pony To Unicorn: Scaling Sustainably’,
“Every startup that does not succeed, does not succeed in a unique way. It is not that all startups that fail will fail in the same way. Each has a unique way of failure and therefore, it is not very easy, to say – avoid these few things and you are bound to succeed. There is no unique formula for happiness and success.”
“We believe there are nine determinants of scale. While there isn’t a guarantee that you will definitely become a unicorn or you will scale, the odds of scaling and growing would increase significantly. Each of these steps isn’t easy to execute. It is about how you collectively work as a team to grow to scale,” he adds.
He explains the first two of the nine are external to the business:
Being in the middle of a mega-trend is necessary. But these are difficult to find. For example, didspot a mega mobility trend, or did Uber trigger one? Hari adds that sometimes astute entrepreneurs can see the writing on the wall and trigger a mega-trend. But to scale, an entrepreneur must be in the middle of it.
Citing an example, Hari explains if the market size is $10 billion, and if you – as a player – have a reasonable chance of capturing five percent of the market share, it gives you $500 million and 2x of that makes you a unicorn. It is easier to build unicorns in the social mobile and internet space, there is a powerful network effect – for example, WhatsApp.
Some businesses like that tend to be a winner-take-all business, but it becomes difficult to say which is a winner-take-all and which isn’t. Facebook scaled faster than the ones that have an early start. Hari, however, adds a footnote saying that unicorns can emerge in the local space where the service providers are highly disaggregated. Infrastructure in India – both public and private – is poor and local entrepreneurs can understand how to handle friction much better.
Not all founders have a burning ambition, but having it helps. “When a mega trend and market opportunity are attractive, you cannot but help but attract gorillas. For example, Amazon is a gorilla in the space of retail, many other ecommerce players have to contend with the gorillas in the space. Founder ambition is an extremely powerful tool,successful fought off Uber by sheer founder ambition,” adds Hari. If you are ambitious of becoming a unicorn, be prepared to fight the gorillas.
It is extremely important to build a strong foundation because it lowers risks and helps build a reputation. For example, in Uber, a single blog post by Susan Fowler on the toxic work culture and sexual harassment brought the CEO down. You need to have a strong code of conduct, strong constructive ethical culture, and invest in the right kinds of tools.
The ability to make strategic choices is critical during the lifetime of a startup. Strategic choices need to be made, else you will be struggling. All the startups that scale, make strategic choices at key points in their journey. They can be on multiple dimensions, like how you can handle inflection points and pivots well, making the right decisions on M&A, etc.
For example -acquiring Myntra and Jabong were terrific strategic choices. made the right strategic choice of pivoting away from airlines tickets to add hotels, as airlines were well organised, and there was little that a tech firm could do, margins were low, hotels were disaggregated, they went on a different trajectory.
It isn’t enough to make great strategic choices, it also is important to execute them strategically. Taking the examples from the book Loonshots by Safi Bahcall, Hari says it gives examples of the kind of companies that innovate well and the kind of companies that don’t, he talks of different kinds of innovations and executions – B-Type and S-Type. B-Type innovations are focused on extreme product innovation like coming up with an iPhone. But these are rare.
S-Type innovation is about how different parts of a company can come together, where different functions and teams come together in a very seamless way – tech, product, ops, customer service, delivery, last-mile logistics, etc.
To an outsider, it looks like there is nothing innovative, but if you are an insider, you realise, for example, how is it possible that a delivery boy across different geographies gives you the same customer experience and does it every single time.
“It calls for training, technology, process, audits, and everything to come together in a seamless manner. Strategic execution is also about being able to decide what not to do. There is a lot of noise and startups people want you to do a lot of things, but you also must realise that a lot of things waste your time, and find out the activity traps and avoid doing those,” says Hari.
What kind of values you build. You build your own culture and it is a complex topic. “When you graduate from college, we start with some elementary understanding of finance, marketing, ops and process, and some context on culture. While in the work scenario, we learn a lot about all the other aspects, we miss out on the culture. Even people with 20 years of experience don’t understand how to leverage and build a culture to create business impact,” adds Hari.
This is about startups being maniacal about customers and understanding their needs. For example,is maniacal about the customer, starting by asking why a customer would shop at BigBasket, what makes them shop online, and how they can have control over inventory.
Human Capital Programmes
These can be around multiple dimensions – at what stage do you hire, conflict resolution and management, bring people to work together. Functions can begin to fail should you hire above the leader or under the leader, manage the performance of hundreds of leaders who are making decisions on their own.