Five Steps to Unicorn Status

The first major milestone for most startups is finding product-market-fit. While this is a great step forward, it’s far from the end. I’m still amazed at how startup leaders think that product-market-fit means the hard work is done. That’s certainly not the case for the startups that aspire to become unicorns one day.

Keep in mind that only about half of startups that get seed funding make it to a Series A round. Of those Series A companies, only half of them reach Series B. At each level, only about half of all startups make it to the next. In other words, the hard work is far from over at product-market-fit.

To reach unicorn status, there is a difficult and chaotic road map to follow. There are so many things that startups must do to keep growing and ensure that they not only survive in the long run but learn to thrive. This is why product-market-fit is only just the beginning.

For me, there are five levels that a startup must reach and master to become a unicorn. That’s why I put together a video detailing all five levels on the journey from product-market-fit to unicorn status. As always, feel free to reach out with questions or if your startup is looking for help.

If you think the hard work is done once your startup has reached product-market-fit, think again. The pathway from product-market-fit to unicorn status has no fewer than five benchmarks that all startups must master along the way. When your business is able to level up, you get yourself that much closer to true unicorn status. Needless to say, the journey after product-market-fit isn’t an easy one. That’s why we decided to take a closer look at each of the five levels startups must master to become unicorns.

Step 1: Desirability

The art of mastering desirability is almost double-checking if you’ve truly found product-market-fit. Too many startups believe they have reached product-market-fit before actually getting there. It’s also worth considering that product-market-fit is actually a moving target and can potentially be lost even after finding it.

In any event, there are three areas where a startup must be strong to solidify product-market fit. Is there an innovative solution? Is there a painful problem being solved? Are there enough customers willing to pay for that solution? If a startup is weak in one of these areas, changes need to be made to ensure they are strong in all three areas before they have mastered desirability and can move to the next step.

Step 2: Distribution

After you master desirability, the next step is mastering distribution. To put it another way, this is when you find as many customers as possible who are willing to pay for your solution. Not only do you have to find paying customers, but the cost of acquiring customers has to be significantly lower than the revenue those customers will generate. In short, you measure customer acquisition cost versus customer lifetime value. Typically, investors will want the lifetime value of your customers to be three times as much as your acquisition costs. Any lower than that and it’ll be hard for your startup to claim that it has mastered distribution. 

Step 3: Deepening

The third level to master is deepening. This means being able to take your product to mainstream customers and not just early adopters. Many startups tend to experience a slump between finding early-stage customers that are a perfect fit for their services and expanding their market to a wider, mainstream customer segment. 

This often requires producing customer support, training, and manuals that early-stage customers usually don’t need but are often required for mainstream customers to understand why they need your product. The messaging of your startup is also going to change at this stage. Rather than offering a revolutionizing solution for early-stage customers, you are now offering a smart and alternative solution for mainstream customers.

Step 4: Disruption

The next step is to start disrupting the major players in your industry in a significant way. Everything boils down to how are you going to take away market share from those incumbents and big players. More than anything, it’s important to recognize that this isn’t going to happen all at once. You need to cut into that market share one step at a time. This will require a carefully crafted and deliberate strategy that typically involves going after the most lucrative market first.

Step 5: Defense

Once your startup has taken away market share from competitors and become a big player in your industry, it’s time to play defense. You are now the incumbent and have to prevent your competitors from doing the same thing to you that you just did to someone else. This isn’t as easy as it sounds. Marshall Goldsmith perhaps put it best when he said, “What got you here, won’t get you there.” Disruption is far different from playing defense, so you need to be willing and able to change tactics in order to deny others access to your market.

Conclusion

With so many different levels to master, you can see why the journey from product-market-fit to unicorn status is so difficult and why half of all startups fail from one fundraising round to the next. Hopefully, by understanding the road map a little better, you’ll have a better idea of how your startup can make that journey to unicorn status. 

If you want a little more help and guidance after reaching product-market-fit, please reach out. We have experienced coaches and facilitators from around the world who can help guide your startup on its journey to becoming a unicorn.