What Is a Startup?
Startups have transformed the business landscape everywhere. Newer generations seem to be more prone to seeking freedom from the inflexible 9 to 5, looking for opportunities where they can access the immediate results of their hard work. Today’s markets are in high demand for innovative ideas that can disrupt existing systems and move human experience to newer standards; question remains, haven´t we always been this way?
Nowadays, we hear various stories of successful startups - as information travels in real time - but the concept of a startup must have existed since humans first began trading. The tech startup revolution on the other hand is as new as the technologies that have allowed it - a few decades – and so tech-related growth has lead to an exponential rise in startups.
So what defines a startup?
There are ways to identifying a startup, but there is no real consensus as to what defines it. Parameters have been created, based on age, profitability, growth metrics, exits, culture and so on, but how do we know that a startup is a startup, or when does it stop to be one? Some consider that after 3 years in the business, most startups cease to be startups. This tends to coincide with other factors such as acquisition by a larger company, revenues that go beyond $20 million, over five people on the board, more than 80 employees, or founders personally selling shares.
To get an idea about the ongoing confusion, let us consider the example of Uber. The company has been around for 6 years, is valued at over $50 billion, operates in approximately 60 countries and has tens of thousands of employees worldwide. Is it still classified as a startup company? To which a spokesman from Uber has answered, “I have not heard otherwise” – which is in line with the fact that the company remains in rapid growth with ongoing discovery of new services to offer. Many do argue otherwise, stating that Uber can no longer fit the startup mold given the number of years it has been around, added to its financial value.
On the other hand, many founders believe that startups are not defined by metrics but by the culture they portray. When people join a startup company, they decide to sacrifice stability in exchange for the potential to grow tremendously, and the excitement of taking part in something that carries an instantaneous impact on the world.
- Thoughts about Growth
A startup does not have to be tech-oriented but one thing agreed on by everyone is its ability to grow. Startups are different from traditional businesses as they are designed to grow fast – they usually have something that they can sell to a very large market, which is not so for most businesses. This is also one of the reasons why most startups today are tech startups, as online businesses manage to reach larger markets.
- Time & Space Constraints
A startup company is designed to scale very quickly, unconstrained by geography; hence, a little fashion boutique in a town may or may not be considered as a startup. It is a distinctive feature of most startups today, that they do not adhere to the constraints of time and space and can operate anywhere, anytime.
- Relationship with Funding
Another characteristic agreed upon is that the success of a startup is no guarantee for there is ongoing risk in investing in such a company. Startups usually seek financial investment differently, via angel or venture capital investment, as opposed to most small businesses that rely on loans or grants. Investors, who provide startups with investment tend to have a more active role in them, like VC firms that offer funding in exchange for equity.
- Exit Strategy
Investors look for an exit strategy when funding startups; it is their way of cashing out their investment; what gives them a return. A startup is unlikely to get VC funding without an exit strategy. The strategy may be an initial public offering (IPO), being bought out by a larger player, mergers, or other ways. Said nicely by the Small Business Association, “Startups have some unique struggles, especially in regard to financing. That’s because investors are looking for the highest potential return on investment, while balancing the associated risks.”
The online community may disagree with respect to the exact parameters that define a startup, nonetheless, there is common ground as to how it is viewed. A startup is seen as a high-risk innovative business idea created to solve an issue, which could either result in massive success or failure. To quote Neil Blumenthal, co-founder and co-CEO of Warby Parker, “a startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed.”
Do you have what it takes to tackle the unknown?