The primary half of 2021 produced 291 new unicorns — greater than 2011-2015 mixed.
Unicorns, that are new firms valued at $1 billion or larger, had been so named due to their rarity. However now, we’re seeing extra unicorns than ever earlier than, by a large margin. Software program as a service (SaaS) firms, which characterize greater than a 3rd of all unicorns, lead the development.
Why are we seeing so many extra unicorns — and why are so lots of them SaaS firms?
Listed below are the ten components contributing to the rise in unicorn firms:
1. New applied sciences, led by the cloud
At any time when there’s a serious technological advance, newcomers leverage it into mega-corporations. The arrival of TV gave rise to NBC and CBS; cellphones made Verizon and AT&T attainable.
Right this moment, it’s the cloud.
Again within the Eighties, we needed to promote every buyer a CD or laborious drive containing the software program. The client then needed to bodily set up the software program on their very own server, learn to use it, and wait a very long time for updates.
Within the 2000s, firms began constructing their very own information facilities. That made it extra environment friendly for each firm and buyer — however nonetheless, not each firm may afford to purchase or construct a knowledge middle.
The cloud eradicated practically all limitations to entry. The cloud lets firms put software program in a shared, public place, with out main investments in actual property or infrastructure. Now, you’ll be able to construct a software program firm with $100 within the financial institution. I ought to know — I ran the earliest model of Gong off my private Gmail account, paying lower than $100 a month.
The outdated means of construct, ship, set up has been flattened into code and add. With decrease capital limitations, many extra folks could make forays into the SaaS house.
2. Verticalization — quick access to area of interest markets
ServiceTitan builds software program for area service companies — HVAC, plumbing, electrical, and so on. There are roughly 250,000 such companies within the U.S. alone, and 3-5 instances that many world wide.
20 years in the past, ServiceTitan would have needed to journey to every service store, make their pitch, and manually set up the software program. It will have taken a very long time to seize regional companies, and it will have been near-impossible to maneuver out of their area, not to mention in another country. However with the cloud, ServiceTitan can construct the software program as soon as, put it on-line, and attain a worldwide market with out ever leaving their workplace.
Discipline service enterprise software program is a fairly particular area of interest…on a regional degree. On a worldwide degree, it’s enormous. Let’s say 750,000 firms pay $500 a month for his or her software program. Per yr, that’s $4.5 billion in income.
3. Customers demand high-quality consumer expertise (UX)
Many new unicorn SaaS distributors aren’t essentially offering something new, however they’ve constructed merchandise that conform to fashionable consumer expectations. Not solely do folks need software program to carry out a perform and fill a necessity, they need it to look a sure approach, really feel a sure approach, be intuitive sufficient.
Corporations that perceive fashionable consumer expectations and design software program accordingly win large.
4. Accelerated iteration and improvement
Corporations used to develop merchandise utilizing Waterfall challenge administration — a conventional mannequin primarily based on manufacturing and development trade initiatives. Waterfall is linear, sequential, targeted on one overarching challenge.
Now, firms have a tendency to make use of Agile, an incremental, iterative strategy, dividing one main challenge into many smaller cycles. Agile is far more versatile, permits asynchronous work on the identical challenge, and permits firms to make many small, fast enhancements, slightly than sluggish, singular enhancements.
5. Explosion of information
Not solely can firms enhance software program extra shortly and ship updates extra simply, however they will collect an infinite quantity of information telling them precisely how clients need them to enhance.
Corporations used to depend on surveys, suggestions, hunches — successfully guessing what clients wished. Now, firms design software program with built-in information assortment mechanisms, to allow them to observe each conceivable metric with out counting on self-reports.
Coupled with quicker improvement, this implies higher merchandise, extra finely tuned to consumer wants, delivered seamlessly.
6. Rise of customer-centric enterprise
SaaS firms used to promote particular person items of software program (keep in mind AOL CDs?). They’ve now shifted to a subscription mannequin, the place as a substitute of a one-time $120 charge, you pay $10 per 30 days.
That’s a a lot friendlier mannequin for firms, nevertheless it additionally will increase strain on them to show their worth many times over time. It’s by no means been simpler for purchasers to arrange new merchandise — which means they’re extra prone to swap if a product comes with poor customer support.
Amazon laid down the customer-centricity gauntlet. Corporations within the software program house specifically have taken discover: To repeatedly show your worth over the long run, wonderful customer support is non-optional.
7. Corporations capitalizing on macro adjustments (like COVID-19)
Identical to main technological adjustments, main adjustments to our lifestyle create enormous enterprise alternatives. Within the early 2000s, when our lives started to shift to the web — socializing, correspondence, enterprise, leisure — it created house for titans like Amazon and Apple.
Change has solely accelerated since then — and other people have develop into extra attuned to vary’s enterprise alternatives.
COVID-19, for instance, modified the world by making distant work the default for a lot of firms. Meaning extra Zoom calls, extra digital correspondence, extra information for firms to investigate and optimize. A service like Gong’s, which may flip all that information into actionable enterprise insights, turns into extremely helpful in a remote-working world.
8. Low rates of interest enhance cash availability
Rates of interest have hovered simply north of 0% because the starting of the pandemic. They’ve begun to creep again up a bit, however they’re nonetheless low sufficient that extra money is obtainable to would-be founders than ever earlier than. It takes much less capital to construct a product and take it to market, and that capital has been a lot simpler to accumulate.
Cash availability has additionally fueled a document quantity of enterprise capital (VC) exercise.
9. Developer shortage
On the finish of 2020, firms had 1.4 million unfilled laptop science jobs. With solely 400,000 laptop science graduates per yr, demand for builders overwhelms provide.
What few builders there are have a tendency to hitch pure software program firms — versus firms like Financial institution of America, whose core focus isn’t completely on software program. For the BofAs of the world, the query was Construct vs. Purchase: Will we construct software program in-house, or can we purchase it from an exterior vendor?
With so few builders accessible, Construct vs. Purchase has become Purchase vs. Do Nothing. Elevated demand for third-party vendor software program has pushed up SaaS firms’ worth to unprecedented ranges.
10. Crank the method
Repeated iteration has boiled software program gross sales all the way down to a science:
- Get leads (via chilly outreach/internet visitors)
- Have conferences
- Put leads on trial variations
- Convert them to subscribers
- Renew subscriptions
- Analyze buyer acquisition price, churn proportion, and so on.
- Iterate and optimize
The SaaS gross sales method is a wheel firms don’t have to reinvent. It’s been confirmed and confirmed. If a product is nice, and the gross sales method is ready, all firms should do is wind the crank, and the product will promote itself.
Some say we’re in a unicorn bubble—and claims have been made about unreasonable valuations and market caps. However the mixture of the components above tells a transparent story as to why we’re seeing so many unicorn firms emerge.
