Unicorn Startups Provide Worse Odds Than A Casino

The Product Launch Podcast

A study done by CBInsights tells us that as little as 1.3% of startups might reach so called unicorn ($1B+) status.

Let's talk about why anyone would ever take these odds when you do do WAY better at a casino and what you should probably do instead.

Study - https://www.cbinsights.com/research/venture-capital-funnel-2/

Related Article on SaaS Economics - https://nxtstep.io/blog/how-the-world-of-saas-economics-is-changing/

Free 5 Day Email Course on How to Reach Product-Market Fit Faster - https://nxtstep.io/fit/

Episode Transcript
 Hey folks, Sean here, and today what I want to talk to you about are the economics of SaaS startups that try to reach unicorn status and why. If that is an approach that you're taking, you really shouldn't because statistically speaking, trying to reach unicorn status as a startup is not only worse than gambling, actually considerably worse than gambling.

It's about as bad as playing the lottery, so it really doesn't make a whole lot of sense to dedicate all of your time, effort, and. To try to reach something that essentially is borderline unattainable. So let me share a little bit more detail. Before we go into that though. I wanna be on the same page about what I mean by unicorn status startup, and the definition, loosely speaking, is usually referred to as a privately held startup company with a value that reaches at least 1 billion.

That's usually what people mean when they're referring to unicorn status for a startup. . Now, the question I had beyond that is just how difficult is that? So ultimately, I was able to track down a study done by CB Insights that found that of a study done from over a thousand US seed tech companies, or 1,119 in fact.

only 15 ever reached that level of status. And if you look at that from a statistical perspective, it winds up being about 1.3%, which is ridiculously low numbers. now looking at that, another way of failure rate of 98.7%, which are pretty ridiculously low odds to try to reach a level like that. Now, something else you might be thinking as well.

98.7% of those companies never reached $1 billion startup status, but they might have exited for a lower number than that, which is still impressive and agreed, right? Some of the balance of that number did reach an exit, a successful exit that didn't quite reach that level of status, but it's probably a way lower number than you're thinking, like less than 10.

I added up the numbers from that research article, and ultimately the numbers are probably a lot lower than you're expecting now, just for kicks by comparison, uh, because I wanted to actually look at some statistics of winning at different games if you were literally gambling at a casino . And the one that I looked at is the one that I've played from time to time, and that's blackjack.

Now, blackjack, if you are familiar with this as a concept, Plenty of people refer to it as essentially having the best odds in a casino, so to speak. But even at that, the odds of winning at a blackjack hand any given hand, are typically reported to be over 40%. So now if you compare those two numbers, that's a pretty wide margin, right?

Even if we're considering startups that have a successful exit and don't reach billion dollar startup or unicorn, Gambling looks way more attractive by comparison if you just look at the numbers, which is just bonkers . So anyway, my question for you and what I wanted to talk about here today is really why anyone would want to try to do business if your odds of success were that low.

There's a better way to approach this, in my opinion, and that's really to vie for profitability, right outta. For your SaaS business or your product company. Now, it doesn't mean you're gonna reach it immediately, and it also might mean you need one or more rounds of funding, which I think is totally understandable.

But you really should be vying for profitability sooner rather than later, and not reinvesting literally everything, meaning that your company is gonna have continuous negative earnings until you reach this like mythological status that almost no one ever reaches.

Free Email Course

• How to Build a Profitable AI-Powered B2B SaaS Business for Less Than $750 - https://nxtstep.io/b2bsaas

Connect with Sean

• Subscribe to my YouTube Channel - https://www.youtube.com/@nxtstepsean
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