I have had this conversation with a number of people, notably Marcelo Calbucci of Seattle 2.0 who puts together the Seattle Startup Index. The simple question, is what exactly defines a startup? Is a startup defined as:
- Having been around for less than 5 years?
- The number of employees it has? If so, how many would that be?
- Whether they are bootstrapped, a sidestartup or funded?
- Their growth rate? If so, how quickly do they need to be growing? 10% a year? 500% a year?
- a scalable business? Can a lifestyle company be defined as a startup?
- A product company? How about a professional services firm, are they a startup?
- Simply “I know one when I see one!”
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A Startup can certainly be defined differently based on an individual’s exposure to them but the “tag” of Startup often refers more to the stage of the organization vs. the size.
Here is my list for consideration:
1) Seeking or in the middle of gaining initial revenue traction (the first 0 to 6 million in revenue)
2) Under-resourced to realize the opportunity and expectations of investors
3) Funding is somewhere between self-funded and the “B round”. (often supported by Angel funding or an “A round”.
4) Monthly Board meetings always include the graph “the break even point”
5) Monthly employee meetings always include at least one question about a potential “liquidity event”
@npost:
1) 5 Years Might be an OK Qualifier – but honestly if someone can lose that much money for 5 years and still be trudging along they’re winning a lot of votes by dollars – I’d be willing to sling them in with a startup (XBox? even tho who knows if they’re “profitable” yet)
2) Bad criteria – Facebook has a bazillion but they capitalized well, arguably if you can structure your sales team well that # could get large compared to the costs too…doesn’t fit right with the “spirit”
3) Probably the strongest metric for me personally. I think the “warm and fuzzy” people get when thinking about a “startup” is a bunch of people taking a risk trying to do something great. This capitalizes on that “risk” portion.
4) Growth Rates or lack of growth shouldn’t be in the equation…it took Edison a bazillion times to find the right filament…the question is did he try/take risks/etc…yup
5) Yes if losing money, then maybe it becomes a successful startup if profitable for a year/or acquisition?
6) Most people think product or web-based service. A restaurant could technically be a startup – but in this situation its probably just a “Small Business” Same is also true for services-based companies. I think the secret there is “scale” Most startup “scale” whether b2b or b2c.
7) Usually your gut instant says a lot.
Every business in the world has some “mini startups” in it – Microsoft a prime example.
Maybe the biggest difference is not having a primary means of creating startups?
My tentative “gut” says “startup” involves “tackling markets that are larger than itself.” Not just increasing market share, but trying to get into something that you couldn’t sustain unless you had a specific marketshare or presence.
In a nuttshell I think theres:
1) Creating a Scalable Business (how you take the market and make $$ at it – not with additional headcount)
2) Taking Risks (Sometimes with other people’s money, sometimes with your own)
3) Pre-Profit, or < 1 Year Profit (at that point its a business, not a startup)
4) Definately pre-liquidity event
@James:
1) I think there are a lot of startup (clearwire/facebook) that break the 6M mark – the trick there is tieing it with profitability for a whole year?
2) Also depends on the company – Amazon’s motto was figure out how many people it takes to do the job, hire one less; Microsoft hire one extra
3) I believe some funding even if its just paying your own bills to be an instant qualifier for startup vs side project. People use the craigslist example often – when you go from working it on the side to going full time on it…I’m tempted to use that as the qualification of when it became a startup?
4) See reference to #1
5) I don’t like focusing on liquidity event…I think they’re nice and I wouldn’t turn a great one down but hiring people that are interested/bring that up in the first interview would not happen for me…I like tieing that monthly employee meeting back to the board event for “break event point”
@Nate: First of all, thanks for asking. For the most part, I think that the answer is none of the above and that attempts to define what’s a startup, who’s an entrepreneur, etc., in terms of any sort of metrics are wrong-headed.
I think it all revolves around goals. The goal of a startup is to build something. When you start, you have nothing except an idea or a plan. From there, you build. If you succeed, you don’t have a startup anymore — you have whatever you were trying to build. If you fail, you also don’t have a startup anymore — most likely, you have nothing. There are other possibilities, of course. You can fail in building what you wanted but create something else.
Of course, it might take a long time to build what you were trying to build. While you’re still trying, you’re still a startup. If you give up at some point and turn it into a “lifestyle” business, then it’s also no longer a startup. My very first startup was like that. We succeeded in that we were quite profitable, but we failed in that we didn’t get the growth that would have turned it into the business that we wanted. We made the decision to close a profitable business and move on, rather than turn it into a lifestyle business. It’s a decision I don’t regret, by the way.
Business that succeed still want to grow. Parts of those companies can act like startups inside the company. You see this all the time in big companies like Microsoft, Google, Amazon, etc. Those startup groups work the same way — they try and some succeed and some fail. Let’s take two examples: Microsoft Xbox, which succeeded, and Microsoft NetDocs, which failed. Will Xbox survive? I have no idea, but, today, it’s a mature business and sometimes mature businesses fail. I would say Amazon isn’t a startup anymore and that Entellium still was.
That said, let me address a few of the suggested criteria:
#5. If a lifestyle business is already a lifestyle business, it’s not a startup. While you’re trying to build that business, sure it is.
#6. Many professional services businesses are not startups, but there’s nothing intrinsic in services that rules out a services startup. I personally know of several, including at least one that failed and one that succeeded.
#7. This is backwards. The people in the company are the people who determine if it’s a startup, not people on the outside. The best way to find out if a business is a startup or not is to ask the people who are running/building it.
Perhaps we are overlooking what the company is doing as part of the definition…..
Think about a company that is building a new product and making money on that new product in a new way…. Wouldn’t that cover nearly all startups?
Whether that new product is new to the world, new to a segment, etc – if it is a net new product on the market (not a new shoe design, but a new product) AND is being produced to make the creating company money in a new way, then the company generally would fall into what we all consider a startup.
Great post.
“Startup” refers *mostly* to the stage of a company. A company doesn’t have to be doing something entirely new or outside of a traditional industry to be considered a startup. Facebook wasn’t the first social networking application and Cirque du Soleil was not the first circus act. Fed Ex wasn’t the first organization to leverage the hub and spoke. So few things are truly new.
So, I don’t think that you need to invent something to be considered a startup. However, approaching things in a novel way helps with your chances of success.
Here’s a question, how could you take something traditional like consulting and make it a startup? What would make it novel?