It’s a little flippant to say that building a billion dollar company isn’t easy. It’s a little bit like saying that winning an ultra-marathon isn’t easy. Just like an ultra-marathon though, there are certain things you have to get right if you’re to have any hope of even competing.
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But what are those things? How, in other words, do you even know what it is you’re supposed to be getting right?
Well one person who has a few ideas worth listening to is Kevin Hale, a partner at American seed accelerator Y Combinator.
Prior to joining the Y Combinator team, Hale founded online form maker Wufoo, which in 2011 sold to Survey Monkey for US$35-million.
While that means he doesn’t have any direct experience in building a billion dollar company, his entrepreneurial experience, along with the work he’s done fostering startups at Y Combinator in the intervening years means that he’s in a pretty unique position when it comes to explaining what it is that billion dollar companies get right.
Speaking at the Korean Startup Battle portion of the Global Mobile Vision Conference in Seoul, Hale outlined some of these factors.
1. Decentralise, forget about finding a cool location
A lot of startups harbour dreams of eventually making their way to Silicon Valley and having the kind of cool offices that get featured on ultra-hip design blogs.
According to Hale, that’s just not necessary. If you want your startup to be successful, you need to be able to make it successful anywhere and that doesn’t necessarily entail having an office either.
When Hale founded Wufoo, he did so from Tampa Bay, Florida and allowed all his staff to work from home. It may not have allowed the company to make billions but it meant that it was able to give some serious returns on the US$118 000 in angel investment it had received.
2. Be able to clearly explain what you do
You’d think that this would be Startup 101, but according to Hale it’s something a surprising number of startups that apply to Y Combinator get spectacularly wrong.
Bear in mind that this is an accelerator that sees thousands of applicants for every single one of its intakes. In fact, it’s easier to get into Harvard than it is to get into Y Combinator, so you’d think this would be something that they’d try and nail from the get-go.
It’s not just something you need to get right when applying to a startup accelerator though. You also need to be able to explain to potential investors and customers what you do clearly and succinctly.
If you’re going to make it, you need to stick out and you need to be memorable.
Hale suggests borrowing the inverted pyramid format from journalism when trying to explain what your startup does.
Start off with the bare bones details of what your company does, then go into a bit of history before ending off with the emotive reasons for why your company does what it does.
3. Know your ecosystem
One of the most important features of the Y Combinator programme is called group office hours and involves groups of startups meeting with mentors two hours a week.
This is important not only because it helps companies hone their skills at explaining what they do to other entrepreneurially minded people, but also because it means the startups have regular exposure to other startups within a confined space. That in turn means that the opportunities for collaboration are that much more obvious.
Other startups are just a piece of the ecosystem though and any startup hoping to be successful needs to know as much about a particular ecosystem as possible. Who’s investing right now? and in what kind of companies? Where are the major acquisitions taking place right now? What events should I be going to? These are all questions you need to be trying to answer all the time.
4. Focus on the right numbers
Another mistake Hale says startups often make is focusing on the wrong numbers. You need to find the right index of success for your startup, he says.
The most useful way of doing this, he says, is isolating one number as a measure of success and then aiming to grow that number by 10% a month.
The example he uses is of a diet app. It’s a pretty crowded market, so user numbers and downloads aren’t going to make it stand out. The number it needs to focus on, he says is average monthly weight loss.
Understanding this number will, in turn, enable you to build your startup and focus on what your users want rather than worrying about unnecessary metrics.
5. Realise that no one can do it all for you
There are plenty of really successful companies that have come through Y Combinator, but as Hale points out, it only offers three month programmes and can only take you so far.
“We can’t predict what the next billion dollar company will be,” he says, “we can only predict that the next billion dollar companies will be founded by hard working, dedicated people”.
6. Be prepared to say no…a lot
This seems like the most straightforward of all Hale’s points. After all, you’re never going to build a billion dollar company if you’re prepared to sell it for a fraction of that.
You don’t just have to be able to say no to potential buyers though, you also have to be able to say no to all your doubters.
You have to have big vision and believe that your startup could become a billion dollar business, Hale says.
And in order to do that, he adds, you have to be able to think to the extremes of what’s possible and not just confine yourself to your business plan.
