What is a Startup?

Startups are all the rage lately. It's hard to go through one day without hearing about a new startup, that claims to be innovative, disruptive, working out of a co-working space with a couple of co-founders sharing a vision that changes as fast as the latest entrepreneurship lingo. Oh and don't forget beer and caffeine. If you're not hammering a pint of the most obscure IPA from the never-heard of micro-brewery then getting straight with a cup of espresso, you are not a startup.

Clearly, you need a lot more than that to have a startup. Don't forget one or two angel investors and your MVP. No, mvp is not your most valuable player; MVP in the startup world means minimum viable product.

Dawn of a new neighborhood. photo by me.
Dawn of a new neighborhood. photo by me.

But really, all sarcasm aside, what is a startup? I have to ask myself this question all the time, especially when I'm working on the Free Lunch Friday community. Is a startup just an underfunded company that hasn't figured out what to do? Is a startup a group of people with a common goal?

I don't know, it depends. A startup can be a great thing. Many startups grow to be huge companies and change lives, most fail. But here's what Natalie Robehmed from Forbes writes in her article What is a Startup?:

I’ll go out on a limb and say categorically that after about three years in business, most startups cease being startups. This often coincides with other factors that indicate a graduation from startup-dom: acquisition by a larger company, more than one office, revenues greater than $20 million, more than 80 employees, over five people on the board, and founders who have personally sold shares. Somewhat ironically, when a startup becomes profitable it is likely moving away from startuphood.

I started my career in a startup that was incredibly well funded and for the better part of 7 years it seemed that we didn't know exactly what we were doing or where we were going, things changed every quarter. Eventually the company was acquired by IBM, but I think we lost the "startup" title a year or two into it when we had big clients.

That was all around 2000, when you could get funding relatively easily. It is almost unheard of now for a startup to have 100+MM in funding before showing customers and sustainable revenue. The landscape has changed a lot since then.

A great article I found breaks it down into six factors that comprise a startup: growth, uncertainty, novelty, technology, time and workforce. I think I appreciate the novelty factor the most:

Novelty factor

Along the same lines as Blank, entrepreneur Eric Ries says that in addition to facing uncertainty, a startup also has to create something new. In his own words, a startup is “a human institution designed to create a new product or service under conditions of extreme uncertainty.”

A startup is a company that is working on their product or has a product but the product hasn't been adopted yet. The product could also be basic, but it's what we call MVP. But I think it also has to be an idea that can change something, re-invent something or make a profound difference in a group of people.

It is an idea in motion. But it has velocity, not just speed. Is a little more than just an idea, but not quite a business yet. Defining the word startup is difficult, but a company that is sustainable, scalable an has a growing customer base is not a startup. It's easier to say what a startup isn't, I guess.

2 Comments

  1. Oscar,

    Great post! I couldn’t agree more with your assessment that it is easier to say what a start-up isn’t. In my opinion I think most people view a “start-up” as a newer company, selling a cutting edge product or service whose demand is growing rapidly. Also, I think the term “start-up” is being used as slang for new. Keep up the good work my friend!

    Kurt

    • Thanks Kurt! Definitely agree on what you said. I get a little irritated when I hear people misusing the term “startup” to describe their new company. Like if you’re starting an accounting practice, you’re not a startup just because you’re “starting up” — Definitely the growth and the niche have a lot to play in the definition.

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