Co-founder of Emeritus, Ashwin Damera recently hosted a fireside chat on Wharton Executive Education’s Scaling a Business: How to Build a Unicorn. Joining him in this compelling discussion was Anand Daniel, a partner at Accel, one of the world’s leading venture capital firms. What ensued was an engaging repartee about building a unicorn startup, entrepreneurs, valuations, success stories, and most importantly, the path to success. If you are a budding entrepreneur or someone looking to dip their feet in the world of startups, then this is just for you! Catch the highlights of this chat below:
Damera: What do you look for in a young startup when you decide to invest? Are there any signs that help you decide if that company might become a unicorn startup?
Daniel: Accel has invested in 650 startups. And nearly 15% of them are unicorns today. We follow the Prepared Mind Approach. Before we invest in any company, we deep dive into the team, sector, market, and geography. We ask ourselves a few questions:
- Are they solving a deep problem?
- Is the market large enough to support such a company?
- Is the team passionate about the idea?
- Will they be able to hire the right talent and execute?
- How are they uniquely positioned when compared to other players in the market?
If a company is able to delight its customers, scale month-on-month, project consistent growth, and is not spending excessively on marketing, then these are telltale signs that they are on the right track to becoming a unicorn startup.
An example of a company that started off small and grew primarily by just delighting its customers would be Slack. They did not spend heavily on marketing. Instead, small communities started using the product and vouching for its features. This was a sign of success.
Pro tip #1 for entrepreneurs: In the early phase, focus only on execution and customer satisfaction. Do not chase valuations.
Damera: And as a startup founder, how should one navigate the scaling process while keeping the vision alive and without burning out?
I know this is a tough question. But we often see so many startups doing so well initially, but when they start to grow, kaboom! It all comes crashing down suddenly. What are your thoughts?
Daniel: Scaling a business is no straightforward path. The best way to efficiently scale would be to split the journey into phases. At every inflection point, a founder must ensure the following things:
- The company has the right people for the right job at that very moment
- Add more products or services that will help them scale
- Revisit processes and methodologies that need to be improved or add new ones to improve efficiency across various geographies or sectors
Pro tip #2 for entrepreneurs: It is important to know which phase you are in, as a company. This varies based on the sector and geography. It changes over time and as a founder only you will realize the infliction points.
Damera: Funding is getting tighter around the globe. What should companies focus on at this moment – growth or profitability?
There is obviously no right or wrong answer to such a question. I have seen successful companies that have bootstrapped their entire initial phase. On the other hand, I have also seen VC-funded startups that raise funds every 18-24 months.
To keep the startup going in the initial phase is all about, can you grow and delight your customers. You can’t have growth and also be profitable in the first phase. It is important to consider unit economics here before counting the marketing costs.
- Are you making or losing money?
- How much are you making per customer?
Then comes the next phase where you cover all your costs, even including the marketing and that’s called the contribution margin positive.
Pro-tip #3 for entrepreneurs: Scaling is a step-by-step process. As a founder, the right approach to scaling will depend on the market conditions at that point. Always manage your funds, keep a 6-12 month buffer, and be prepared for the ups and downs in the market.
Damera: How important is organizational culture, and how does a startup founder try and nurture that as the company scales?
Daniel: It is extremely important! It all boils down to what the founders have inculcated in the early stages of the company. When it is a small team, you know every person, and you can imbibe a culture.
Slowly, as the company grows, it is important to find the right people to help you retain and build this culture. A Human Resources (HR) head is a must. As a founder, you must clarify what you stand for as a company and make this known to your employees. Revisiting this at every stage is equally important.
Pro-tip #4 for entrepreneurs: Measuring employee satisfaction via surveys and NPS (Net Promoter Score) is a good way to track, evaluate, and improve your company’s culture as you scale.
Damera: If you had a chance to invest in one of these two companies, which one would you pick and why?
- A really exciting business model and space, but the founding team is very weak.
- The founding team is A+, but the business idea in itself is not as strong.
Daniel: Haha, a marriage of the two, please! But jokes apart, if I had to make a choice, I would choose the company with a stronger founding team. Great founders will be able to navigate and work their way to the larger opportunities. On the other hand, the best opportunities in the hands of the wrong set of people will result in a disaster.
There are many companies that do not start off with a very strong business idea, but they find their way and grow over time only because they have an A+ team!
Pro-tip #5 for entrepreneurs: As a founder, you need to be spending a lot of your time thinking carefully about who’s on the team, especially in the early days. Hire people who are extremely ambitious externally but inwardly they should be humble, modest people that everybody wants to work with.
The complete webinar on Scaling a Business: How to Build a Unicorn is now available for viewing.
Wharton Business School has collaborated with Emeritus to offer a portfolio of high-impact programs for working professionals. If you are interested in the entrepreneurial world and wondering how to build a unicorn startup, then these programs are perfect for you: Scaling a Business and Entrepreneurship Acceleration Program.
By Manasa Ramakrishnan
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