How does an HR tech startup become a ‘unicorn’?

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For the sake of clarity, the ‘unicorns’ we’re discussing today are not the mythical creatures. Instead, the term refers to startup companies with an investor valuation of $1 billion or more.

As the name suggests, they don’t come around very often. Whenever these high potential companies do hit the market, the word seems to spread like wildfire, prompting the investors and venture capitalists to flood in and fuel exponential growth.

You’d be forgiven for thinking it all happens overnight; but the reality is a little different. Comparethemarket.com estimates that it takes a fledgling startup roughly seven years to grow into a unicorn, with the vast majority being born and built in the US, China and the UK. Even so, you have to remember only a tiny fraction of HR tech startups will go on to achieve mythical growth potential.

For HR tech startups looking to achieve such a rare feat, the path has been laid out by highly successful ventures like Gusto, Rippling, Deel and Personio. In fact, all of these companies now boast a valuation that’s closer to the $10 billion mark than $1 billion.

Let’s take a closer look at how and why they got there.

They solve a real problem

Most HR tech startups begin their life by focusing on one or two elements of workforce management – and from a specific angle. Whether it’s payroll, recruitment, talent development, employee recognition, HR admin or anything else, the key is that they’ve spotted a crucial inefficiency in the way businesses manage their people and have devised an innovative way to fix it.

Once their initial idea starts to bear fruit, it’s often the case they rapidly build on their offering and add functionalities to cover a wider range of workforce management.

Services begin to overlap, and one of the big draws commonly offered to customers is that the software offers an ‘all-in-one’ HR management solution.

Even so, unicorns still focus on promoting certain USPs that set them apart from their competitors.

They know their audience

Knowing your target audience is one of the first steps in any business plan, though it’s especially important when dealing with an area of the startup market that’s relatively saturated, like SaaS.

Personio is a good example. The company is very clear about serving small to medium-sized organizations with a headcount between 10 – 2,000 employees. By working this into their sales messaging, it shows that the team has focused on building a product to meet the specific needs of a certain business demographic. In turn, it becomes a core part of their brand identity and immediately orientates prospects as to whether this is the right choice for them.

Understanding your audience plays heavily into pricing, too. Is it better to offer a set price for an out-of-the-box product performing a clear function, or provide more options for customization so that customers can pick and choose between packages to suit their needs? It all depends on the type of companies you are targeting.

They source investment from the right places

HR tech has become one of the most attractive areas of the investment market over the past five to ten years. This can largely be explained by the rapid revenue growth, strong customer adoption and high retention rates that HR SaaS companies tend to offer.

So, whenever a fantastic opportunity opens up for investment, there’s usually plenty of top-tier venture capitalists and strategic investors that want a piece of the action.

The most successful startups are careful about who they bring on board as an investment partner. Firstly, every investor – though especially the biggest ones – needs to be strategically aligned with the mission of the business. This prevents friction and allows for better collaboration, guidance and support as plans for growth are set in motion.

It’s also wise to get investors on board that have specific expertise within the HR tech industry because this can help to navigate common hurdles and accelerate the growth process.

They blow their own trumpet

No tech startup has ever achieved unicorn status without a carefully designed approach to marketing and PR. This starts by educating the industry about their product and explaining which common challenges or pain points it has been built to resolve.

Without marketing, there’s no way a startup can get the word out about their value proposition, or differentiate product USPs from other options available on the market.

Rippling’s ‘Work Magic’ campaign is a great example, combining a memorable, friendly theme with the nuts and bolts of what makes their platform so beneficial.

Of course, great marketing campaigns aren’t just the driving force behind lead generation and a growing client base; they also showcase product potential in such a way that piques the interest of further high-value investors.

They find talent that matches their ambitions

From sales and business development to their own HR team, ambitious startups will never achieve their true growth potential without the efforts of highly talented people all pulling together in the same direction. This is easier said than done, obviously.

Given the current state of the labor market, the competition for top tech talent has never been fiercer. Software developers, data scientists, product managers and BI (business intelligence) specialists are all in incredibly high demand.

And today’s best talent will only be attracted by superb employee propositions that prioritize work-life balance, personal development and strong career progression.

The core team will inevitably have to grow when investment lands, which means having a scalable recruitment strategy that doesn’t compromise the core vision, values and culture on which the initial success of the company was built.

So many fast-growing companies get this wrong and lose the essence of what made their business a great place to work in the early days.

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