The 3 Phases Of Building A Successful Unicorn

2021 was an awesome year in the markets, and also a very good year to raise money for startups. In fact, many enjoyed the bullish market with high valuations. There were about 10 Israeli unicorns and I was interviewed by one of the local newspapers about Waze being the pioneer of the new era.

During the discussion, I asked the reporter, “How old are all these unicorns, what’s their average age?” She didn’t know but guessed it was five to six years. I checked, and the average age of the Israeli startups that had achieved a unicorn valuation of over a billion dollars was 12 years. Yes, it takes time to create value.

First, you need to figure out product-market fit (PMF), then achieve growth and establish the business model. In between, you have to refuel with money through investments and sales.

In this article, I will outline the startup evolution map, detailing each phase and the optimal time to progress.

The Long Journey To Becoming A Unicorn

The key to success would be operating in phases. All startups will have phases of evolution and until you’re done with them, you are still considered a startup. Mind you, usually, there is no option of skipping a phase or two when embarking on your startup journey.

Think of some of the tech giants like Amazon AMZN , Netflix NFLX , and Google GOOG . While we might want to think they were always there, they are actually rather young companies, about twenty-five years old. Then, think of another set of even younger tech giants like Facebook, Tesla TSLA , Airbnb, and Stripe. They are not even twenty. If they were people, they would not even be allowed to drink.

How much of their combined value (market cap) was created in the first decade versus the rest of their journey? I’ve posed this question to many people and the answers ranged from “a lot,” through “fifty percent” to “most of it.” Well… the answer is far less than ten percent. That’s it! Most of the value was created in the second or even the third decade.

Someone once asked me that question and I immediately answered “small part of it.” “How did you know?” this person asked, to which I answered, “That’s easy. It takes time to figure out product-market fit, then additional years of going through the journey of figuring out the business model, and yet another long journey to figure out growth. Eventually, it may take a decade to figure these out and then start to create significant value.”

Your startup strategy’s phases should go like this:

1.Product-Market-Fit

Starting with PMF would mean figuring out how to create value for your customers. Then, you will need to understand how to grow your install base and how to make money. Each one of these phases is a long roller coaster journey of failures.

Think of the top companies in the world - how long did it take Microsoft MSFT , Waze, Netflix, or any other company to figure out PMF? Years… it was five years for Microsoft, ten years for Netflix, and three and a half years for Waze.

You don’t know that, because you’ve only heard of those and other companies after they had figured out their PMF. Those that didn’t figure it out simply died and disappeared.

Think of all the apps that you’re using every day – Facebook, Google, Waze, WhatsApp, Uber, etc. – What is the difference between the way we are using them today, and the first time you’ve used them? The answer is there is no difference. We are searching Google today the same we did the first time. We are using Waze, Uber, or Facebook today the same as we did for the first time.

PMF doesn’t change over time. Once we identify the value we provide to our users, we usually don’t alter it. We might introduce changes to expand our customer base (such as supporting more languages), enhance the conversion rate, or generate revenue, but the core value we offer to our users remains unchanged.

After reaching PMF, we need to shift gears and start a new journey of exploring growth or a business model. The next phase depends on the product, its value proposition, and in particular how it is used.

2.Fundraising- The Fuel For Your Journey

Another preliminary phase that may be crucial, mainly when you need cash to move forward, will be fundraising, and it will come before you start the PMF journey.

Fundraising as a phase may be mandatory for your journey, but it is more like refueling your car to go on a journey. Without fuel, you cannot move forward, but the essence of the journey is not to go from one gas station to another.

After completing the fundraising process, which can take a considerable amount of time, you transition to a different phase. The most important thing of yesterday will no longer be relevant, and the mindset of the CEO, and the entire company will shift to PMF.

Shifting gears between phases is crucial. Shifting between phases ends up being the most challenging part of being a startup CEO. Moving from fundraising to PMF, and once you figure out PMF – shifting to creating growth (or proving your business model) means that the set of objectives and priorities changes.

Team members and management might be replaced and the CEO will move into new territory that they haven’t been to before.

The most challenging part of the journey will be the ability of the CEO to take the company through these gear-shifting phases with a set of hard decisions and do that with conviction so that everyone will follow.

Think about it, you have just completed a very long, hard, painful roller coaster journey and you are back at the beginning of another long hard, and painful rollercoaster. With one day of celebration in between, perhaps. It also means moving from a sort of certainty into uncertainty again, and from the comfort zone (knowing what we are doing and having the right team for it) to being out of the comfort zone. It also means that some of the most critical team members may not be that critical anymore.

3.Product Market Fit And Then Business Model Creating

The right order of the phases is a different case. PMF is always the first one and is measured by one and only one metric, retention – users or customers that are coming back or renewing their contracts. Don’t even think of trying to figure out growth, or a business model, before you reach these metrics. Separate the PMF phase from other phases. However, once you get your retention figures right, go to the next phase of your journey.

The next question of whether growth in users/clients or monetization will be the next phase is not always up to you. In many cases, the startup will first try growth, and if it doesn’t work it will switch to the business model.

Let me suggest an algorithm for you to help you choose. If, in your mind, the business model is of the user or the customer paying – then validate the business model first. In fact, your PMF is incomplete until the users or customers are charged.

However, if the user doesn’t pay, and you need a volume of users for your business model, say advertisement or data, try to figure out growth first. If the use of the product has high value – monetization should come first. If the frequency of use is high – go for growth first.

Regardless, each phase is a journey by itself, and a long one, full of failures (try and error), with hardly any shortcuts. The good news is that once you figure out PMF, you’re most likely on the path to being successful.

This is the third article in Uri Levine’s entrepreneurship series. Follow us for future insights and tips for entrepreneurs. Click for previous articles