Definition
A Startup is a new business created with an innovative idea to solve the problem which provides a unique product or service to the market.
One or more entrepreneurs get involved in finding a perfect solution to the existing problem and combine to work to change the idea into the business.
Initially, it may start with the single Founder, but then joining with other co-founders and team members, it finds significant opportunities for growth in the market, especially in an uncertain situation.
At the early stages of the Startup business, seems to operate on a small scale, but no longer to be small.
Because, for the first few years the Startup business may face many challenges and failures, but with substantial efforts from the team it will gain momentum to grow its business on a larger scale.
What Is Considered A Startup Company?
Innovative Idea
Definitely, Startup is not copying or imitating the existing business model or making franchises for a particular Brand.
A startup business is a new idea that has an intent to solve a problem and covers a large group of people or customers.
Not only should the product be different and new for the startup company, but the founders try to find a unique solution in delivering and serving the customers.
When the target market finds the new product or services is more accessible and customizable with likely features, then it is easy to say that the ideation works.
Validating the startup idea
The startup itself must be validated at every instant in the beginning stages, from all angles and different perspectives.
Validating your startup idea is not just coming with a new idea, and designing a great product by a strong team.
But a big question is, whether it serves the demand and expectations from the market.
Does it solve the core problem?
It includes as many as differentiating factors like strength of the team, budgeting for the solutions, and funding, etc…
To ensure all these criteria to be placed in the right order, supporting documents would be needed for every startup company. They are
- Prototype
- Proof Of Concept
- Minimum Viable Product
- Validation Canvas
Business Plan
The Startup business may want to be unique in the market perspective, especially in serving the customers.
Also, the idea may look like an unusual way to do business.
But it does not mean that the process of implementing the business idea in the working model should be different.
The Startup business needs a basic structure that includes a proper Business plan like many other contemporary business models.
It is important to have a Business plan and it would help entrepreneurs to approach the investors and to attract them for funding in the Startup business.
Business Structure
Startup business is said to be structured when it gets registered.
If the business is not registered legally, then it is just a model.
When the Startup business gets registered it should define the type of business that best suits the entity, by the founders.
Such types are sole proprietorship, partnership, private limited and Limited Liability Company, etc…
It must have the proper office setup, infrastructures, online presence like maintaining a website and other social media platforms.
The Startup Company must have an organizational structure that describes top management to low-level employees and their payroll structures, irrespective of the number of employees.
Also, it must be stated that who is responsible and liable for the company, their limitations, and how the shares would be divided among them.
Scalable
The startup business must be scalable, this means it should potentially expand over some point of time.
The growth probability should be beyond the limits, considering various factors that will be multiplied ‘n’ times in the future.
The attributes of any startup company that will be scalable are
- Global expansion
- Operational service or Logistics
- Legal obligations
- Funding structure
- Market research
- Franchising
Right from day one, the founders should put their consistent effort to develop the marketing plan for the minimum viable product. Because, if the product gets the attention of the customers, even before the completion, it will get valuable feedback from them.
By doing so, the owner gets the advantage of scaling prospects and gets a clear vision to develop the product, before reaching the investors.
This justifies the fact that the startup idea is a scalable one.
Buyable
A startup company should be a buyable one.
Some of the startup founders may have an exit plan. May or may not be. If they plan to sell in the future, it must be designed considering the selling modules.
This will ensure success, even if it is not going to be sell in any way.
If the startup is scalable and buyable, then it will attract investors to buy for millions of dollars. It also protects the value of the company when it is subjected to transition.
Sufficient Fund To Run A Startup
Startup businesses must have the capabilities to raise funds, which could be obtained from multiple sources. It should possess sufficient amount of money as investment capital.
First, some of the founders get it from their family and friends for initial operations and turn to angel investors or venture capital funding later for further business development.
Crowdfunding is another important source for business funding, especially for startups, as this source is appropriate for new business ideas.
New Startup ideas attract large numbers of people when entrepreneurs display their business model through special platforms and crowdfunding websites.
All that the entrepreneurs need to get invested from these sources is a clear Business plan and Proof of Concept.
How Startup Is Different From Other Businesses?
There is some misconception that startup companies are small businesses, which might expand as a big venture.
No, exactly not…
Small business can be a copied one or it could be a franchise that could easily make a profit. All operations that are associated with a small business will be at a low level.
But the startup is entirely different.
Right from the ideation, business model, funding it has its unique operations, that disrupt the industry. Some of the startups may prone to be a failure. It is another part of the game.
Business Model
Startup business models separate from other types of businesses. As it has many directions, it finds many opportunities to develop, grow, and expand than the well-established businesses.
It is a new model that never exists.
Startups are not a copied businesses. It is a contemporary model that will rule the industry. It cannot be operated single-handedly, it requires some functional support like startup schools or startup incubators.
Growth Stage
Startups and other businesses cannot be compared or measured in terms of growth or profitability. Here comes the uncertainty theory, where the startups can grow exponentially than any other business.
As other type of business firm has already grown, it has certain limitations in acquiring new markets. Only the operations and features will be customized.
But startups will either show potential growth possibilities by acquiring new customers or they will die.
It has several key performance indicators to measure the growth, which is different from small businesses and corporates. The differentiating growth factors are crucial and it will be determined by the investors when the startups seek funding at different stages.
Strength Of An Employee Or Startup Team
Normally, corporates or small businesses hire an employee, which will be big in numbers. Ranging from 100s to 1000s, employees work at different levels and units.
Startups work as a team that involves founders, co-founders, and other professionals and they are very less in numbers. Also, they will hire employees to manage their work ranging from 10 to 100, but, not more than 100 people work in a company.
Unlike other businesses, startup founders have more responsibilities to lead and manage the team and hustle to grow their business. However, in the future startup will find its viable way to grow as a larger company through subsequent funding stages.
Finance
Startups are funded for the growth necessities at different stages.
Small business often get funds from the pocket, friends, banks, when it shows sales and revenue report.
But, startup get funds from venture capitalists or angel investors, even before it makes a profit. Different rounds of funds are there for startup companies according to business requirements.
If the business doesn’t seem to be a lucrative model, the investors don’t invest to lose. Funding will be one of the factors for many startups to fail.
Exit Plan
A well-established company can sell its shares and doesn’t have an exit plan.
But the investors of the startup company invest more money in millions, holds equity shares, and expect a return after some time.
For example, after five years of growth stage, the startup could be sold for a good offer than reaching a bad position.
That is why an entrepreneur should focus on building the company to meet revenue chances at a certain time. The owner must consider some successful exit strategies while building a company over time.
- Initial Public Offering (IPO)
- Merger
- Acquisition
- Management Buyout
Once the startup is acquired by any of these means, then it is no more considered a startup company.
Reader’s Insight
Let us know if we missed out on anything in this article, what is a startup? and share your thoughts in the comment section.
