My daughter tells people when asked that her dad hunts Unicorns as a job. Most people kind of look at her and smile, imaging me running all day long chasing pink fluffy one-horned animals, but in one way it is really what I do daily with my amazing team of co-hunters.

No, we are not some kind of stone-age tribe hunting mystic creatures. We are part of a company that 16767 days ago was a start-up itself (and in many ways still is) named Microsoft and we focus on building long-term strategic partnerships with the late-series start-ups (D, E, F onwards) as well as the Unicorns (privately held companies valued over $1 Billion) of this world. And there are so many of them, existing and popping up daily all over the planet.

But what makes a Unicorn? I had to do a presentation for a customer in an envisioning workshop and they asked me to talk about start-ups (as they are one themselves) and in the preparation discussion with the CEO/Founder he asked me — “tell me how we become a Unicorn — give me the magic formula”. I told him if I would know the formula I would not be in Microsoft at this time and instead would-be producing Unicorn after Unicorn using the magic of the formula.

But the question kept intriguing me over the weekend, and I started to think what makes a Unicorn or a very successful start-up. Let us face it, not every start-up becomes a Unicorn, many are bought by another company to complement their portfolio before they reach this “holy Unicorn” status. Or worse, do not make it at all and die the silent “wannabee” death.

As said in my day-day job we work with start-ups all over the planet and I started to look at them, at their offerings or plans, at the technologies they used, at the way they operate, how they think of their universe, the people behind it and on and on. Call it the winning ingredients of the Unicorn “soups”, or the variables of the formula to get to the Unicorn status. And I looked at ones that failed or did not completely make it. Or decided to stop half-way. Or restart. The last 10–15 years have produced many examples of start-ups that today are such a “normal” part of our lives that we tend to forget they once were are a start-up or Unicorn in the first place. Think of Uber, AirBnB, Tesla, WeWork, SpaceX, Pinterest, Facebook, and Klarna Bank for example. And there are so many known or famous — today there are around 208 unicorns around the world today, with a cumulative valuation of $1.3 trillion. Tomorrow probably 209…

So, what makes the formula was my next question. What ingredients or variables do successful start-ups bring in the mix of their dream and company to make it work at the end. What are the must do’s, must have’s and must not do’s in order to become part of the select group of 208 and be number 209? As in every business there are 100’s of things that can go wrong or right but I don’t think all of them are that critical. I love the saying “retail is detail” and I think it applies very well to any company and industry. But my experience with the start-ups is that some things do not matter that much, and some things do matter so much more.

I started an exercise over some days, in between meetings or Teams calls in this COVID world — which by the way has helped many start-ups accelerate in a way they could not foresee before as online became the New Normal and they benefited from this acceleration big time — I started to write down ideas, observations and things that seemed to work out. And ended up with a big list of ingredients in 2 days already. I took this list aside and left it for some days bubbling.

Then I started to group them, consolidate, delete as they were obsolete or duplicate and ended up with a list of 13 variables which, if all work well and are in place, in my humble view will allow a start-up to scale and potentially become a Unicorn. I do not pretend to have the wisdom of the world in my pocket so please do not sue me if it does not work for you. But I do think these variables are very important to look at and test or validate yourself against when you are starting, or even are on the road already. I love what Churchill said, “There is nothing wrong with change, if it is in the right direction.” and I am a strong believer of making changes when there are needed fast, even if painful. In Holland they have a saying “Soft doctors make deep wounds”.

So, let me spend some time on going over the different variables which, in my view and full of disclaimers, make a good and potential start-up, from idea to execution to the 209th Unicorn of this world. And I will try give you some examples of start-ups where I think they have managed to get these “right” or at least close.

Spending time thinking how all these variables come together and make a start-up a Unicorn and trying to order/group them into some kind of formula (and yes, I should have paid better attention during mathematics classes I guess) I came to the following formula, which in my view, if all variables are “green” will give a company a very good shot at becoming a Unicorn. If one is not there one of the multipliers becomes zero and the whole thing will become zero…

The Unicorn Formula

Please allow me to explain each variable, one by one and why I believe they make a difference as a part of the bigger picture of becoming a Unicorn.

The idea

You need an idea. Guess that is no rocket-science. But what is “an idea” and more important what makes “THE” idea versus all the other millions of ideas out there. Really successful companies seem to have something to offer others clearly don’t have. I strongly believe it is not one magic ingredient, but it is a very balanced and very well matching mix of them that make THE idea, and then only when all ingredients are present it becomes “THE idea”. If not, it probably will still live, but it will be living the life of just “an idea”.

Variable #1 — Being Different — you will need to be willing to dare to do something different. Something really different, unseen, undone, untried unheard and unbelieved. Like Tesla starting to build electric cars and kind of fight a whole legacy industry who thought they knew better. Have the guts to do it, despite people laughing at you….

Variable #2 — Shamelessly “Copy and Paste” and combine good ideas from other industries, companies, communities, geo’s, people, processes, or approaches ­– they look at what is happening around you, what is new, what is working and what is not. Beyond your own habitat and comfort zone, of even areas of knowledge. And shamelessly steal and copy the best things of others, combine them, optimize, and re-invent them for your own good and purpose. Like Careem did with Uber, and then added services beyond what Uber did. To be bought by Uber again at the end. I see many start-ups around me do the same tricks daily. Often from competitors or colleagues in different industries or countries, copy, paste, combine, and make it better, faster, and smoother. And apply in a different industry, approach, or geographical location.

Variable #3 — Leverage the newest technologies and combine them — I guess this is an obvious one but a key one for sure. But not more important than the other ones as in technology these days everyone has (kind of) the same access to the same innovations, speed, scale, and resources. All this thanks to the world of Hyper-Scale Cloud-Computing and the ever-connected world. Small or big, you can have access to the same compute power as anyone else around you, you can use the same AI and ML toolsets and you can make it scale like everyone. It is what you do with it and how. So, yes important. But not most.

Variable #4 — Different Ways of Doing — Unicorns do what others do in a different way. Consistently. And sometimes disrupt a whole industry by just changing the rules of the often decennia old game completely. Look at the rise of online travel and hotel booking sites — remember the days you had to go to in person to a travel agency to book a holiday or business trip? They changed the industry and just crushed the margins and the power of airlines. Just by doing it in a way no one had planned or foreseen for when they started the industry in the first place. And there are plenty of these examples around.

So, let us assume you have all the ingredients for “THE idea” of the century as explained previously. Does this mean you are done and can pre-order your 178m yacht at the shipyard? No, it means there is a little bit more of a chance you can get closer to the holy grail of Unicornism, but sorry for the bad news, it will need a lot more. Starting with the proper execution of your idea….

The Execution

According to the good old dictionary “execution” means “the carrying out of a plan, order, or course of action”. And this is exactly what it is — bringing your idea to life, step by step. Which is a whole different show than the ideation part and, in my view/experience the #1 reason why start-ups fail or do not make it to Unicorn. As many different, less funky, and flashy, factors and variable come into the game now when the idea train leaves the station for the journey to Unicorn.

Variable #5 — Will Power, Realism and Patience — let us start with will-power. What I have seen a lot is that most start-up founders have this endless belief in their idea, their vision and their plans and will keep fighting and going till, the often-bitter end. So that one is probably a “tick in the box” with 95% of start-ups. But after will-power comes realism and there it seems some end up in channel-tunnel vision. It is hugely important for start-up founders and (often first time in their careers they lead big fast-growing teams full of smart and wise people) early leaders to realise what is really needed to build a successful company and what they can contribute. Or better not contribute. And equally important, they need to be very (very !) honest with themselves on where they might lack the experience, expertise, or talent … and think of seeking external support or reinforcing the team. Which is something that is not always easy as how do you know this in the rush you are in. I recently read an article in HBR which stated that the average age of people who are founders of “successful” start-ups is 45. Forty-five, meaning you can kind of assume these people did something else in their life before. Maybe other start-ups, corporate life or had a bar. But whatever they did before, they have experience, and probably even loads of experience. I mean 20 years of work is at least 32.000 hours of opportunities to learn something…. Which contributes to their sense of realism. And finally, you need patience. Hours and hour of Patience. Patience to go through endless VC or PE pitches, designs, concepts, product failures, cash-flow challenges, failed partnerships, and your most brilliant people leaving to other start-ups as they have less patience than you as founder. Or are more realistic.

Variable #6 — Operational Excellence — a start-up is a company. A real one. It even needs to pay tax. And a company needs processes, tools, structure, and discipline to stay alive as a company. Of course, one of the big charms and attractions of working at a start-up is not being a “corporate weasel”. But I have not seen many successful start-ups at D+ scale that do not have a CFO, CPO, COO and often many other supporting roles and functions. As they need to be lean and mean and be very good in the game of understanding the risks and opportunities. Once more, learnt-the-hard-way experience comes in again here. At all levels and disciplines. And many start-ups have recruited seasoned business leaders to “lead” while the founders keep innovating. Look at Google where Google founders Larry Page and Sergey recruited Schmidt to run their company in 2001, allowing them to focus on what they truly enjoyed — innovating.

Variable #7 — Luck — “Luck Is What Happens When Preparation Meets Opportunity”, Roman Philosopher Seneca said and it is very true, especially in start-up country. But it is not enough. Any start-up really needs some luck along the journey, and no one succeeds just being lucky. Being at the right moment at the right place. Let me give you a recent example — HubHaus was a long-term housing rental platform rooted in the belief that dormitories would take off. The start-up targeted working professionals in cities and raised around $11 million in known venture capital. After then pivoting to a self-funded company, HubHaus was just finding footing when the coronavirus pandemic arrived, drastically hurting the rental market (as shown by Airbnb’s public struggles, as well). The housing company eventually decided to close in September 2020, leaving landlords, members and vendors in limbo and bringing on a fresh sweep of critique and controversy. And there are many examples around of what happens when there is no plan-B in place and the unexpected happens.

Variable #8 — Space to Scale (they use to call this addressable market in the good old days) — if you want to reach over 1Bn USD valuation or more you need to have a product or solution capable of going at scale. Big scale, independent of what you do, in any flavour of scale. You can either use it if it is there already (like a big existing market or emerging need you see coming) or just simply create it if it does not exist yet. The good news is the world is the playground for all of us these days thanks to the unprecedented communications capabilities and the internet scale and power. But still, you can have it wrong and go after the wrong audience. Like getting into a niche which does not bring you the volume you need. Or designing something that does not work globally due to limitations you did not foresee from your backyard. Or even having chosen the wrong name. If your current space does not offer you the scale for whatever reasons you could look at the neighbouring industries and see what you can get there. Or just go out and make the market. Remember Thomas Watson, IBM, predicting “I think there is a world market for maybe five computers.”

Variable #9 — Sales Power — which does not automatically translate into having loads of salespeople. There are so many ways to sell your product or solution these days and the trick is finding the right channel that matches your audience and your idea. And it does not need to be 500.000 outlets across the globe. It could be partnerships, co-branding or even inclusion or bundling of your idea into another product. So many opportunities but you need to find the right one…. Which will take experimenting. A lot of it.

Variable #10 — Money — money in the form of your grand-mothers’ savings, private equity or a venture capital fund investment may not solve all your problems, but it does remove some bears (not beers) you might find on the road to Unicornism.

Variable #11 — Capability to Deliver — you might have the most brilliant idea in the world, see the market all around you, have the money to build and scale your idea, have the best team on the planet working on making it happen but if you are in the desert on a ship you will not float. One of the biggest challenges I experience most start-ups have is how do we make sure we get it to work. From building the product or solution to making it at scale, to sometimes literally shipping it to the end consumers on the other side of the planet, physically, digitally, or legally. You can have the most amazing idea to share date amongst people of the world and forget things like GDPR. I have seen many examples of start-ups with an amazing idea that works in their village. But there it stops. And so, do they.

The Moment

What is the moment for something… Especially the moment to bring an idea to market? I do not know, and I do not think anyone does. Did Zuckerberg wait for the moment to start Facebook? Did Elon Musk wait for the right moment to introduce PayPal? Often start-ups create the moment themselves. But there must be some magic or wisdom somewhere to being able to come at the right time. I mean — PayPal without internet would not have many pals. So, the timing and moment does matter.

Variable #12 — Right Timing — like I said before I believe this is a hard one to define, but a very crucial part of the equation — like 100 times 0 is 0, coming at the right time is a multiplier of your impact and ultimately your success as a start-up. The timing to enter the market, “or your space” will define the speed of adoption and your success. If you go into a small market, that is not growing your impact will be futile (think of going into the market of fax-machines today). If you go into a large market that is not growing, you will be fighting the start-ups of 10 years ago and invest and fight to get a part of the pie (remember Windows Mobile). If you go into a small market to early you will need a long breath and a lot of money to stay even alive before it becomes big (Ever heard of WebVan which had online grocery stores in the 1990’s, long before others and still did not make it as they went out of cash because they came too early). What you need to do is to arrive just on time in a small, fast growing market. Where there are no large incumbents, where not many co-start-ups have discovered the niche and it is still small enough to be successful with “little” investments. Timing matters…

The Impact

I remember a world without internet. Without mobile phones. Without 7 different online messaging tools where people bug you with pictures of themselves every moment of the day. I remember the days when you physically had to go to a Betamax video-cassette rental store to rent a movie (and you had to be lucky the one you wanted to see was there). And still, I am not that old to make this a “long time ago” past. But did I then ever long to 800mb internet speeds on my mobile phone so I could send my friends pictures all day long on social media and have the choice of watching millions of movie titles wherever and whenever I felt like it? No. But now that I have all this do I want to miss it? No. You get the point on variable 12 — having impact.

Variable #13 — Having Impact — You need to create something people do need or will need or never have realised they needed before. Someone once said, “There is no reason anyone would want a computer in their home.”. I just counted — we have 15 (PC/iPad/Xbox) devices over here in my place. Point made. The impact is here.

The Unicorn Formula

In closing, by no means I think I have all the wisdom of start-ups in my pocket, nor do I know how to become a serial Unicorn factory owner. It is just some experience I have with dealing with many successful start-ups across the globe daily and a will to share a bit of this that made me come up with the variables, and the Unicorn formula as below.

I tested the formula with some of the existing ones around and realised it works (most of the times). Of course, we now know what they did not know when they were in the mode of “start-upping” but still it is fascinating (in my view) to see the formula seems to work in some way.

Let me show you an example of one where it did not work out for them — Videology, maybe you have heard of them. Videology is an example of an idea that was too far ahead of its time. Created by Scott Ferber in 2007, Videology had a total funding of $201 million. Their main goal was to get advertisers to place ads on digital platforms to reach their target audience at massive scale while offering unprecedented tools to measure the video’s efficiency. Their formula looks like this. Not good.

The industry at the time was not able to incorporate the ideas. Videology in turn was not able to adapt to the industry demands and wishes and kept going in a tunnel-view and ended up as a costly start-up failure. An unforeseen problem was that Google and Facebook changed their advertising policies, no longer allowing outside companies to buy ads.

Another example is Netflix — it did work out for them as history shows us. I guess you know them.

You can come up yourself with many others for sure — give it a try I would say and share them if you like. I would love to get your ideas, feedback, learnings, suggestions and learn even more about the fascinating world of start-ups and “close downs”.

Michael — Michael Kögeler | LinkedIn