When asked this question, one would probably associate the term with a young high tech venture. But is it correct? We have recently started using the word “startup” quite often and maybe just too often. Are all young companies really startups?
Let us start with a definition of a startup to bring some theoretical point of view. Merriam-webster.com explains it as: 1. the act or an instance of setting in operation or motion, 2. a fledgling business enterprise. The deal could be done though, it turns out that it still may cause some problems to determine whether an entity is a startup or not, since there are no certain and constant rules which could help define a startup. Why? Because the profits, revenues, numbers of employees vary between many types of companies.
How about factors indicating graduation from the “startup position”? Some may argue that being a startup even after 5 years since foundation is possible. However, 3 years old startup seem to be “mature” enough to claim that it has transformed into a fully developed company. Other circumstances, such as entering other large company, opening more new offices (startups usually gather around one man office), employing more than 80 people and having more than 5 members of the board, founders starting to sell shares personally, and finally, revenues exceeding $20 million – may direct us to the change in the status of a startup to a “startup graduate”. It might mean that simply becoming highly profitable means leaving a startup position and “maturing”, but as it often happens, some do not really want to mature too quickly.
One thing is crucial in understanding the notion of a startup: not all small businesses, like opening a tiny local shop or a franchise, are startups. What makes a business a startup is its ability to develop without geographical constraints. Such business is created to grow and develop fast. Yet another thing we need to know about startups is the fact that they are not necessarily tech companies as it is commonly believed. Startups use the advantages of new technologies and this is probably their best and fastest way to achieve success and stop being a startup.
Startup founders believe that it is not the amount of time their businesses have been existing which indicates the status, it is the aspect of innovation and feeling of having an impact by what they are doing. Influencing the future world, fresh, new and appealing are the characteristics of startups, which make them attractive and so “cool”.
The fact that the acquisition of a startup by a big company means leaving “startup-dom” is also arguable for some founders. Surely, the process of acquisition and its conditions can be different in all cases, but the fact of going public or becoming a professional businessman in an expensive suit become very clear indicators that your startup may have stopped being a startup.
To sum it up, what makes your startup a real startup? Revenues below $20 million, less than 80 employees and you not freaking out about purchasing a new wardrobe of expensive suits and still having a total control over your fledging company.