I have been thinking about building Billion $ companies in Iceland for sometime now. A Billion $ company in Iceland is only exciting to me because the premise is that it would create a vibrant ecosystem in Iceland. So how does one go about creating a Billion $ company? I am pretty sure every startup founder starts with some hypothesis about the size of their market. However, in my experience most founders don’t really have a good estimate on the Total Addressable Market (TAM for VC speak). It is difficult to measure a market that grows at a fast pace or for that matter a market that does not yet exist, think about companies like Snapchat or Whatsapp or Facebook or even Google. Building products for markets that don’t yet exist is a difficult task, you need to build awareness of the market and make sure that you are making something that market will love etc The difficult part is not the actual task of doing what needs to be done, it is actually going day in day out with no clear direction of how this is going to pan out. The uncertainty and managing your own psychology under the conditions of uncertainty are the difficult parts.

Lets assume you have a huge market in front of you and your product has a chance of addressing the problem of that market. What else do you need? well, you need to be able to get in front of that market and you need to get every customer in the market to give your product a try. Traction as they call it, is what we need. Once you have some traction, what next? you need to have the capacity to raise enough money to scale the business. Brad Feld wrote a post titled “The Illusion of Product/Market fit“, where he goes into detail about what scaling means, he followed up that post with another great one about funding with the title “We will never need another financing round“, famous last words from many Startup Founders for sure. I even got into trouble with a startup founder, because he said that funding was not a problem for him and he has enough money in the bank to scale the business. Well, IMHO, it is not just money you need to scale a business. Of course you need funding and there are several ways to get it. I am not saying it is easy either.

Lets do some simple math, if you need to build a company that is valued at a Billion $, a typical rule of thumb is that you need to be generating $100 million in sales per year. So going from 0 to $100m in sales is no easy task. It takes time, skill, experience and luck. It does not have to be just sales it could be any other metric but the ultimate goal is sales and EBITA (Earnings before Interest, Tax and Amortization). Building a sustainable business that has the potential to generate revenues in the hundreds of millions of dollars are what called Unicorns in Startup/VC speak. Having experienced people read VC’s who have done this before is an important ingredient in the puzzle.

In order to get to $100m in recurring sales my simple rule of thumb is that you need to raise $100m not all at once but in stages and while you are growing. Now coming back to Iceland, we have just seen a number of announcements related to funds that have raised money to invest in Icelandic startups, the total amount is close to $90m invested over the next 3 to 5 years. That is $30m each year lets say that. I would say meaningfully we could fund maybe 10 to 15 companies a year. I don’t think we have any problem of founding or starting companies, the problem is in scaling. How does one scale companies, teams and revenue? There are no easy answers but given I have seen some companies that I have invested in go from 0 to tens of millions of dollars in sales, it takes a lot of energy, strategy and execution.

I wrote about building Traction, I know of some of the founders who really know how to execute and some are doing a great job at it and those who have not, do not reach back to me for any more time. I know when things are working for a startup, it shows in the bounce of the walk of the founder. I don’t discriminate in helping founders because I know this is hard. Empathy and understanding is what I have to offer, maybe sometimes some tough love. Believe me you will thank me for it.