What Constitutes a Billion Dollar Startup?
There is a growing trend among entrepreneurs today to think of their startup as a future billion-dollar company. Many entrepreneurs simply don’t crunch enough numbers on the billion dollar part. What is the break-up of their billion dollar revenue? I have analyzed some successful startups over time only to discover some common factors in their financial reports. By using the term Billion Dollar Company, I am referring to startups that reached a billion dollars in revenue, and not in profit or valuation.
I will state these factors below.
Volume of Sales
The most important factor of a billion dollar revenue is volume in number of transactions. It is obvious that a Ferrari sports car generates less revenue than a Fiat family car, because 1) The number of people buying Fiat cars is twelve times the number of people buying Ferrari cars. 2) The most common Ferrari costs only seven times the cost of the most common Fiat car. These two reasons demonstrate why Fiat owns the Ferrari brand and not vice-versa.
It is very important to have a tremendous amount of transactions from customers to become a cash cow. Make sure your sales process is free of obstacles and delays, so that a volume can build up.
Diversity of Offerings
A billion dollar company is a big system. It is almost impossible to reach a billion dollar revenue with only one or two offerings. For example, even though Facebook’s primary offering is promoting posts, there are many other sources of income such as promotions for likes, promotions for website hits, promotions for app sign-ups, in-app purchases for games, promotions for events. All of these sales channels are flooded with transacting customers, creating a tunnel of incoming money.
Make sure your startup is able to provide services to customers with different needs. One service that is required today might not be required tomorrow. Your auxiliary services, therefore, will act as your backup in maintaining a diversity of offerings.
Free-flow of Inputs and Outputs
The free-flow of information in a startup often drives its journey towards the billion dollar status. Who all are you customers? If you run a food and beverages startup, are your customers both — eaters and makers? If you run a content delivery website, are your customers both — readers and writers?
Let’s take the example of LinkedIn. LinkedIn has a free-flow system because their customers are both, people who have a talent, and people who hire talent. Employers would pay to shortlist professional profiles, and potential employees would try to befriend potential employers.
Make a startup where it does not need to perform offline middleman’s work, so that rate of information exchange will drastically rise.
Global Impact
This was one of the most important factors that I noticed of billion dollar startups. They make an excellent global impact, and many times that impact is big enough that many already established companies tumble. Online media services make offline media tumble; online booking services triumph over phone booking services. The reason is their global impact. They are natural growth-seeking mechanisms that overtake slow-growing offline services.
Make sure your service creates such impact where you do not have to organically settle in a country of your residence to grow your business.