A recent post called The Surest way to build a billion dollar company by James Slavet tries to look at data from the past to explain a plan for how to be a billion dollar company (And thankfully he never uses the i-word once). If you like his premise it’s a well written article with insights into how companies have achieved this in history:

The first observation in looking at billion-dollar consumer Internet companies is that there aren’t a lot of them. We’re approaching the twenty-year mark of the commercial Internet. Amazon and Yahoo were both founded in 1994. Yet from a recent scan of the public markets, there are currently only twenty-four publicly held U.S. based Internet companies that are worth $1 billion or more. That’s about one company per year for the past twenty years…

A full two-thirds of the 24 publicly traded U.S. Internet companies worth more than $1 billion are digital transaction firms. The billion-dollar club includes a heavy dose of travel, local and real estate businesses. The list includes Priceline, Expedia, TripAdvisor, HomeAway, Groupon, OpenTable, Yelp and Zillow. Other transaction-focused businesses that clear the threshold include Amazon, Ebay, Netflix, Vistaprint, Shutterfly, Ancestry, Bankrate and IAC/Match.com.

But there are fallacies lurking in the premise.

1. The surest way is not very sure. It’s very unlikely any company grows this large, even successful ones that are well run. Most new companies fail and even successful ones likely see normal levels of growth year to year.  Even if Slavet’s advice is sound and followed, it doesn’t improve the likelihood much. It’s not as if we’re talking about the surest way to get a job, or the surest way to tie your shoes. Of course even a 1% improvement in odds is worthy if the stakes are high.
2. History is an unreliable predictor of the future. He accurately points out that most of the billion dollar companies of the last decade are transaction companies, suggesting that’s the domain with the best odds of becoming a billion dollar company. That may have been true in 1996, but it’s possible the abundance of these types of companies makes it a mature playing field, moving the domain of opportunity elsewhere, somewhere harder to predict. The next few billion dollar companies may look little like the last ones.
3. Most factors are beyond your control.  The reasons why each of the companies mentioned (Google, Yahoo, Amazon) succeeded had much to do with forces those entrepreneurs didn’t control such as: how many competitors were there, how proficient were those competitors, how did their market change, which key people were available to join the company (or not), which technologies they depended on improved, etc. Entrepreneurs by nature discount forces they can’t control which helps them take on big risks, but those pivotal forces are also typically discounted in analysis of the past and the present.
4. Many billion dollar companies don’t start with the specific goal to be worth a billion dollars. I could use someone to check my history here, but I don’t think any of the companies he mentioned set out with an explicit goal to be a particular size or net value. They were all small companies started by people inexperienced with entrepreneurship  who mostly wanted to create a viable business based on their ideas. They had projections of possible growth which their investors likely demanded, but when exactly were those projections made? Before they began or after they had a fledgling, but functioning service? Of course, given #2 and #3, the fact that they did or didn’t do something may have had little bearing on the outcome they experienced.
5. Bigger risk ventures have higher payoffs but lower success rates (maybe?). I don’t have data to support this claim, but a hypothesis is the factors you need to put in place to go after a billion dollar business, by design, increase the general risk of the venture. For example, buying a popular sandwich shop has very predictable returns, low risk, but modest growth potential. Starting a new web service in a new market has hard to predict returns, high risk, and high growth potential (if the market lasts). You can chart risk vs. reward for different ideas and look for sweet spots.
6. Potential for scale is the goal.  A better framework for evaluating Amazon, Google, Expedia and others is they are businesses that had high potential for scale. They could create one product in one place and serve the entire planet, assuming the entire planet was interested. It’s very hard to predict exactly how big a market will grow, but you can build a business with plans for scale, and how to grow scale quickly to match a fast growing market. An interesting analysis of billion dollar companies is which ones simply out-scaled or outpaced their competitors, competitors who may have had other advantages over them.

You can read Slavet’s article here: The Surest Way To Build A Billion-Dollar Internet Company | LinkedIn.