Introduction
In the modern entrepreneurial landscape, the allure of creating a unicorn—an app-based business valued at over $1 billion—captivates many ambitious minds. However, the journey to unicorn status is fraught with challenges and uncertainties. Empirical evidence reveals that the probability of an app achieving such monumental success is alarmingly low. This article delves into the statistics of app success rates, examines the role of luck, and proposes a novel approach: leveraging traditional businesses as “jump pads” to propel app ventures into unicorn territory.
The Stark Reality: App Success Statistics
Creating a successful app is often likened to finding a needle in a haystack. According to research, the probability of an app becoming a profitable business is less than 0.01%. The odds of achieving unicorn status are even slimmer. A study by CB Insights found that only 1 in about 1,500 startups reach a valuation of $1 billion or more. These sobering statistics highlight the need for a strategic rethink in how app-based businesses are conceived and developed.
The Role of Luck in Success
While skill, innovation, and execution are crucial, luck plays a significant role in the success of app businesses. Market timing, virality, and unforeseen external factors can make or break an app. As Nassim Nicholas Taleb discusses in his book “Fooled by Randomness,” the impact of randomness and luck in business outcomes is often underestimated”. For every successful app, there are countless others that fail despite having similar potential and capabilities.
A New Approach: The jump pad Strategy
To increase the likelihood of success, entrepreneurs can consider a two-step approach: starting with a traditional business and then leveraging it to launch an app. This strategy involves:
Step 1: Establishing a Traditional Business
Higher Success Rate: Traditional businesses generally have higher success rates compared to app startups. For instance, about 50% of small businesses survive five years or more, according to the U.S. Small Business Administration.
Stable Revenue Stream: A traditional business can provide a steady revenue stream, reducing the financial pressure on the entrepreneur.
Customer Base: Building a loyal customer base through a traditional business creates a strong foundation for future ventures.
Step 2: Launching an App
Word of Mouth and Referrals: The traditional business can serve as a launchpad for the app, leveraging its existing customer base for word-of-mouth referrals.
Market Validation: The traditional business provides valuable market insights and validation, increasing the app’s chances of resonating with users.
Hockey Stick Growth: With an established customer base and market presence, the app can achieve the desired hockey stick growth trajectory.
Case Studies and Examples
Several successful businesses have followed a similar path, starting with a traditional model before launching an app that capitalized on their existing market presence.
Warby Parker: Initially a traditional eyewear retailer, Warby Parker used its established customer base to launch a highly successful app, enhancing its omnichannel presence.
Original Business: Warby Parker started as an online eyewear retailer in 2010.
Initial Value: Within a year, Warby Parker was generating $1 million in revenue.
App Launch: Launched their app in 2014, which significantly enhanced their omnichannel presence.
Current Status: As of 2021, Warby Parker is valued at approximately $3 billion, with over 100 retail locations and a robust online and app presence. The company went public in 2021, and its app has millions of users .
Key Factors: Strong PR strategy, innovative home try-on program, seamless integration of online and offline experiences.
Glossier: Starting as a beauty blog (Into the Gloss), Glossier built a loyal community before launching its product line and app, benefiting from a strong word-of-mouth effect.
Original Business: Glossier originated from a beauty blog called Into the Gloss in 2010.
Initial Value: The blog garnered a significant following, leading to the launch of Glossier in 2014.
App Launch: Glossier’s app was launched in 2017, leveraging its strong community base.
Current Status: Glossier reached a valuation of $1.8 billion by 2019. The company continues to expand its product line and digital presence, with millions of loyal customers and substantial online sales .
Key Factors: Community-driven brand, strong social media presence, seamless integration of content and commerce.
Zappos: Although primarily an online shoe retailer, Zappos leveraged its strong customer service reputation to launch a mobile app that significantly boosted its sales and customer engagement.
Original Business: Zappos started as an online shoe retailer in 1999.
Initial Value: Zappos quickly grew, achieving $1.6 million in revenue by 2000.
App Launch: The Zappos app was launched in 2010, enhancing customer engagement and sales.
Current Status: Acquired by Amazon in 2009 for $1.2 billion, Zappos remains a leading online retailer with a strong app presence and millions of users Key Factors: Exceptional customer service, extensive product selection, innovative return policy.
Peloton: Started as a high-tech exercise equipment company in 2012, founded by John Foley.
Original Business: The company initially focused on selling stationary bikes equipped with screens for streaming live and on-demand fitness classes.
Initial Value: Peloton raised $307 million in funding by 2017, valuing the company at $1.25 billion.
App Launch: The Peloton app was launched to provide access to fitness classes without needing the Peloton hardware, thus broadening its market reach.
Current Status: Peloton went public in 2019 and is valued at over $30 billion. The app has millions of users who access Peloton’s extensive library of fitness content.
Key Factors: High-quality fitness content, community-building, integration of hardware and software.
Conclusion
The journey to unicorn status is undoubtedly challenging, with daunting odds and significant risks. However, by adopting a strategic approach that leverages the stability and customer base of a traditional business, entrepreneurs can create a more favorable environment for their app ventures. This jump pad strategy not only increases the chances of success but also provides a safety net, making the entrepreneurial journey less precarious. By rethinking the path to unicorn success, aspiring entrepreneurs can turn the daunting challenge into a more achievable and structured pursuit.