Treated as a buzzword, startup is frequently used in the news and views these days stimulating heated discussions within economic circles and forums. As well, it has, as a concept, gained credence in today’s economic world winning increasing popularity with those who desire to practice entrepreneurship. Yet despite this, there are still many who are not certain enough about the meaning of the term and seek further clarification on it. To eliminate this uncertainty to the extent possible, I will briefly discuss the definitions of the term provided by experts and will also elaborate on its types and characteristics in what follows.
It may initially look easy to find a definition of the term but, given the realities on the ground, it will afterwards promise to be a more difficult undertaking. It is all the more misleading when you try to look it up in standard and famous dictionaries such as the Oxford English Dictionary (OED) or the Longman Dictionary of Contemporary English (LDCE). The former defines it as a “business enterprise that is in the process of starting up” while a startup, according to the latter, refers to “a new company that has been started fairly recently”. The definitions provided by these two dictionaries carry the major implication of time while the concept of the term can abandon the convention of a normal chronology. You might have been running a business for ten years but it is still conceived as a startup.
There are some who tend to offer a more realistic definition of the term startup. Rebecca Baldridge and Benjamin Curry of Forbes magazine believe that “Startups are businesses that want to disrupt industries and change the world—and do it all at scale”. However, the Investopedia website provides us with a more detailed definition of the term:
The term startup refers to a company in the first stages of operations. Startups are founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand. These companies generally start with high costs and limited revenue, which is why they look for capital from a variety of sources such as venture capitalists.
Based on what is practiced in entrepreneurial ecosystems, the concept of startup contains some other aspects as well. It thus comes as no surprise that some definitions accordingly encompass different perspectives. For example, the co-founder of Warby Parker, Neil Blumenthal, believes that “a startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed”. With this in mind, it is not hard to understand why founders of startups are obsessed with creating something new that has not been created yet. It is obvious that they expect the return of their investment at the same time.
However, there are still some other important features that are commonly ascribed to a startup business which are not indicated in the definitions provided above. Anyone who is intent upon starting up in the world of business needs to bear in mind that a startup is often associated with a myriad of characteristics. A startup is often characterized by its innovation, scalability, flexibility, risk, growth, and problem solving. It is good to mention that all these are considered by business gurus as the contributory factors to the success of a startup.
The success and survival of a business hinge upon innovation and this innovation can occur in the product or service provided or in the business model of the startup.
A successful startup comes with a business model that is repeatable and scalable. To be specific, it has the potential to grow with no need for increasing financial or human resources.
To validate the business idea, the startup should be able to tailor its service or product in order to meet customer requirements.
Awash with uncertainties, startups are considered risk bundles. So, they are generally conceived of businesses with high failure rates. The startup founder should thus be prepared to run, face, and manage risks.
Startups are aimed to expand and grow rapidly. Maybe that is why they are usually considered as small businesses.
A startup is basically intended to solve an existing problem in the market which has gone unanswered so far.
As a matter of fact, the term startup is not just reserved for any new business as explained above. Startups come in various forms and types about which we will provide some explanation. Obviously, these different types of startups vary in the number of people, amount of funding, and kind of strategy they use although they are all considered startups and their founders are all called entrepreneurs:
1. Lifestyle startups: Businesses with a particular level of income
As a lifestyle business or venture, a lifestyle startup typically comes with a limited potential for growth and scalability. It is to be noted that “often their founders create them to exercise personal talent or skills, achieve a flexible schedule, work with other family members, remain in a desired geographical area, or simply express themselves”. Heavily dependent on the skills of its owner, a lifestyle startup is mainly geared towards supporting their income and personal requirements rather than maximizing their revenue. Some examples include teaching, blogging, cooking, training, photography.
2. Small business startups: Companies with small teams
Though interested in growth, they are a kind of business that tends to grow at its own pace. Often self-funded, such startups are happy as long as they can sell their products and/or services and are under less pressure to scale rapidly. Construction, education, auto repair, and landscaping are just a few examples of this type of startup.
3. Scalable startups: Companies that seek capital (or scale themselves)
Startups such as business and consumer apps find it easier to scale as they acquire new customers. They usually achieve this once they have built a user-base. To proceed with their plans, they attract capital from outside resources such as angel investors, venture capitalists, business partners, family, and friends. They seek capital, scale themselves further, and attract more customers in order to capture the attention of those who show interest to purchase them. Google, Twitter, Facebook, and Skype are the perfect examples of this type of startup.
4. Buyable startups: They are built to be bought out
Usually associated with tech and software, the idea behind developing buyable startups is to get a small team together, develop a business from scratch, and then get sold to a larger company. A good case in point is WhatsApp.
5. Large company startups
Starting small with a product that is revolutionary, large company startups go global. As they reach the end of their life cycle fairly quickly, these companies need continuous sustaining innovation in order to keep growing. With this in mind, you can consider Apple Inc. as a perfect example of a large company startup.
6. Social startups: Nonprofits and charitable companies
Startups are mostly remembered for their desire to grow and of course money but this is not the case with social startups. They are basically intended to serve some philanthropic purpose relying on grants and donations. The objective of the founders of such startups is not to make profits but rather to simply contribute to good causes in a society. Charity institutions are one of the examples.
Note: We are here at Bay&Co to help you start or bring your business to Canada. Either it is a startup or mature business, we can help you with your transition and growth in Canada throughout the entire process. If you need assistance, please do not hesitate to contact us.