10 Laws of Building a Unicorn

10 Laws of Building a Unicorn

Byron Deeter has seen his fair share of unicorns. At Bessamer Venture Partners, he sees thousands of pitch desks cross his desk – and sees many startups that fail after getting funded. After his years of experience he shares his insights on the ten qualities that unicorn companies share.

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In a nutshell:

  • Lower your CAC payback period. That’s key to surviving funding crunches, and to future growth.
  • Customer success is company success.
  • Go mobile or go home.
Law 10: we are in a world of on-demand everything

“We live in a word where summoning a vehicle we’ve never seen from a driver we’ve never met and waiting a few minutes is an inconvenience.”

Consumers expect that you deliver your product on demand. It’s only now that enterprises are catching up. Going forward, enterprises will have the same expectations of SaaS businesses that consumers do of in-flight wifi and ridesharing apps.

Law 9: Grow (efficiently) or die

The best small, private companies with around $10 million ARR can grow around 300% a year; the best public ones with $100 million+ in ARR typically grow around 30%. Deeter sees many founders at $10 million benchmarking themselves against those $30 million companies – that doesn’t fly. When you’re small, you should be growing much faster.

Law 8: Sales efficiency is your oxygen

CAC payback period = (total sales & marketing spend last quarter) / [(new MRR added last quarter*(gross margin % of business)]

An efficient CAC payback means you don’t have to take as much venture funding – which translates to more founder ownership. When it comes to maximizing ownership, existing investors’ and founders’ interests are aligned – both want efficiency; neither want dilution.

Law 7: Customer success == company success

Just 1% improvement in churn can, down the line, translate to an extra $20 million in ARR. At current multiples, that’s an added $100m in valuation. Not exactly chump change.

From the get-go, you should be professional, strategic and deliberate about your customer service management.

“Keep, manage and love your customers. You cannot afford to lose them.”
Law 6: Control your own destiny - cash is king

Cash used to be cheap, but in the current downturn, the Bessemer Venture Partners Cloud Index – a portfolio of top-performing cloud companies – lost $63 billion in market cap. The less you have to rely on outside funding, the better.

Law 5: Maximize the 5 C’s of cloud finance

  1. CARR (committed ARR) and ARR
  2. CAC payback
  3. Churn
  4. CLTV (customer lifetime value)
  5. Cash flow
Deeter recommends that you build a dashboard around those 5 metrics, and check them weekly if not daily. He also recommends the 1-1-1 rule for post-Series A SaaS companies:
  • 1 < (\frac{net-new ARR}{net burn}) - that is, your net-new ARR is greater than your net burn rate.
  • < 1% monthly gross churn and ≥ 1% net churn
  • 1 year CAC payback
  • Law 4: The best product is finally starting to win
The days of sales being made on golf courses are over. Today, enterprise products find their way in because individual users love them. If you’re building a truly valuable product, that’s damn good to hear.

Law 3: The ascendancy of developers

Today, there 20 million global developers who consume products as customers - they have spending power, knowledge and sophistication. Court them right, and they’ll be your advocates within their companies.

Deeter recommends leveraging existing data and APIs to accelerate your business (e.g. Uber using Twilio, Google Maps, SendGrid). Don’t reinvent the wheel – focus on what you’re good at.

Law 2: Inspire (and hire) with vision

People are joining you as founder or executive for your vision of the company. Hire for diverse teams not because of political correctness, but because they make better decisions. Set out an inspiring vision statement and be worthy of your team.

Law 1: Mobile is eating the world (wide web)

Mobile is the game changer. Basically everyone in enterprise B2B now has a smartphone, and last year, over 50% of internet usage came on mobile, not desktop. Companies are taking advantage (think DoubleDutch and Slack). We’re just finishing Wave One of mobile development, which was all about content consumption – making desktop media viewable for mobile audiences. We’re entering Wave Two, which is focused on content creation – not how mobile can approach desktop, but how can it improve on it?

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