The magic number for successful startups has skyrocketed over the past several decades. Not long ago there were few members of the $100 million club. Today, with global broadband networks reaching nearly everyone, markets are larger and so are the opportunities.
Becoming a billion dollar success story isn’t confined only to Internet or social media wizards. In fact, members of the billion-dollar venture club range over an impressive array of industries: hardware, medical devices, e-commerce, and online gaming to name just a few.
Consider Razer, a 10-year-old startup based in Carlsbad, California. Founder Min-Liang Tan followed his passion when he invented a computer mouse designed exclusively for hardcore computer gamers. A gamer himself, Tan was frustrated that the standard mouse that came with his PC could not keep up with the rapid clicking requirements of popular games. He needed a mouse designed for speed, and since none were available, he created his own. Today, in addition to the high-speed computer mouse, Razer also sells clothing and accessories featuring its iconic neon-green snakes logo, and peripherals, software, and wearable devices. Razer has had a total of $50 million in equity financing, and its most recent valuation was $1 billion.
Proteus Digital Health makes tiny microchips that can be implanted into prescription pills. When a patient ingests the pills, stomach fluids activate the chip, which emits a signal that is read by a patch on the patient’s chest. The idea behind this technology is that it will verify that the patient is taking the pills as prescribed. It provides real-time usage data, enabling more effective intervention and follow-up with patients. Proteus has received over $350 million in venture funding and has a valuation north of $1 billion.
Finally, there’s Beibei, an e-commerce startup based in Hangzhou, China. Beibei serves as a marketplace for a wide range of children’s products. Founder Zhang Lianglun started the company as a clearinghouse of items from trusted brands after thousands of Chinese babies were sickened by tainted milk powder in 2008. Beibei has raised $124 million in venture funding and sports a $1 billion valuation.
What do these billion dollar companies have in common (other than their incredibly generous valuations)? While no one can predict which venture will join the billion dollar club, there are several rules that entrepreneurs can follow to position themselves well.
Rule 1: Solve a Massive Human Problem: Members of the billion dollar venture club don’t confine their value creating efforts to the small problems in their own lives. Instead, they aim to change the world. Research has revealed that the highest levels of human success are better predicted by the character trait of grit than by raw IQ. Entrepreneurs who are determined to solve massive human problems need to be smart, to be sure, but they also need to be able to persevere beyond normal human capacity to achieve world-altering goals.
Rule 2: Build a Diverse and Passionate Team: Savvy entrepreneurs are comfortable working with and giving credit to others more talented than themselves. Innovation is most likely to happen in an open environment where random meetings between people of different talents can lead to serendipitous outcomes. In his recent book The Innovators, Walter Isaacson ably documented the innovation and market development process as a diverse team sport. Many of the technologies that animate our modern lives were conceived at the nexus between science and the humanities. The interplay between visionaries, engineers, entrepreneurs, and others sparks creativity that leads to new product insights.
Rule 3: Avoid the NIH Syndrome: Many entrepreneurs fall prey to the NIH (Not Invented Here) Syndrome. They want to be the architects of their entire offering and eschew learning from or building on the innovations of others. This affliction is insidious because many key innovations and inventions come from individuals or companies that are either ill equipped or hesitant to commercialize what they’ve developed. Entrepreneurs constricted by the NIH Syndrome not only miss out on these innovations, they are forced to build it themselves, which can be time consuming, expensive, or both.
For example, it is well known that Steve Jobs gleaned much of his original graphical user interface ideas for the Macintosh from a visit to Xerox’s Palo Alto Research Center (PARC) laboratories. It is equally well known that Microsoft Windows was built on some of Apple’s innovations. Of course, intellectual property rules must be observed, but many leading edge innovations are in the public domain.
Following these three rules will not guarantee that a startup will join the billion dollar venture club. There are no guarantees in this dynamic economy. However, startups that follow these rules are generally positioned for success.
