When a Startup is no longer a ‘Startup’?

By Teri Legaki

If you look around the business ecosystem you will discover that many people characterize as startups, companies like Facebook and Google that have been with us for over than 10 years. This fact has created the question: just how long do you have to be around before you are no longer considered a startup?

As there is no generally accepted definition of a startup company in the venture community, since revenues, profits, and employment numbers change drastically between companies and industries, there is a variety of opinions to answer this question. Merriam-Webster dictionary defines a startup as ‘a fledgling business enterprise’. This definition is a good starting point, however there isn’t a numerical definition of fledgling, that is to say an exact known point of when a startup is grown up, doesn’t exist.

For many people also when defining a startup, growth seems to be a differentiator.  Paul Graham, founder of Y Combinator describes that ‘a startup is a company designed to grow fast’ (Robehmed, 2013) . He points out that in order for a startup to grow, the company has to provide something that a lot of people want and at the same time, ‘reach and serve’ all those people. Without putting any time limits on being a startup, Graham argues that a startup isn’t merely fledgling , but a ‘different breed’ from other companies, which justifies his significant argument that despite the fact that many new businesses are founded every year, the majority of them doesn’t make them startups.  Thus, the key attribute of a startup is the ability to grow unconstrained by geography, which differentiates startups from local businesses. For example a town restaurant, a flower shop or a franchise doesn’t constitute a startup company.

In the same logic Steve Blank, serial entrepreneur, states that a startup is an ‘organization formed to search for a repeatable and scalable business model, in order to disrupt existing markets’ (Blank, 2010). ‘Search’ is what differentiates established startups from small businesses opening in a mature market, meaning that a startup will go from failure to failure, in order to learn and discover what does not work in the process of searching that scalable high growth business model. Startup companies using their networks dynamics can cause ‘cascading effects’ with their behavior. As they rely on innovation and market disruption, by using new approaches and behaviors will start spreading outwards through their network, influencing their public. Here you can see Steve’s Blank diagram:

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As we mentioned in earlier posts, startups are breaking new grounds in technology, by offering an innovative service which the market has never been seen. Many point out that startups are doing things differently in comparison with big corporations’ approaches. For a startup, getting funds is the biggest impediment. With the emerging concept of crowdsourcing, getting funds for your startup company has become an easy job, as through social media platforms you can  easily approach and direct people to invest in your business and see it grow up day by day.

Nevertheless, over the past few years some startups created real businesses that no longer need the support of venture capital and can also generate profits and sustain growth on their own. They know precisely their markets, what they want and how to deliver it, and most importantly they don’t need outside financing in order to survive. Many have supported that from the time you create something sustainable or you ‘exit the market’, you cross the line ‘startup’ to ‘established company’. A good example for this argumentation is given by Keith Pieper, CXO, Sequenti.al Media: ‘Survey Monkey has been around for years, generating profits, acquiring other companies and new financing, but it’s never had an ‘exit’. The recent financing wasn’t because they needed cash; rather they needed to create a small payoff for vested stakeholders. I wouldn’t call Survey Monkey a startup. They are a cash cow with an appetite for meat.’ (Ebbert, 2013)

On the other hand it is suggested that there is no line between ‘startups’ and ‘full-fledged businesses’. As there are many differences between industries, goals, founders and companies, for each one of them, the sets of metrics that indicate when the ‘startup’ title is no longer appropriate, aren’t the same. For example, some metrics might include profitability, market share, and longevity and for others an acquisition from another larger company, such as Google or Microsoft. However, at the end of the day all you have to remember is, as Steve Blank noted , that every startup company  begins as an idea in ‘search of a business model’ ,  but its evolution from that point and on and also the way  ‘officially’ became an established company, is every time  a ‘unique journey’.

Many founders nowadays protest that being a startup company is more of a ‘mindset’ than a particular point in time. As Adora Cheung, founder of Homejoy said, ‘Startup is a state of mind. For us, startups work hard and fast to innovate and change our ways of working or living’. If we view startup companies as being run with a certain mindset, than a line in the sand around some business, such as number of employees, revenue, cash flow etc, it’s something to hold on to. You are a startup when every sale you make is the difference between making or not a payroll, when your customers are the whole reason you do what you do, when you embrace that continuous challenges and chaos are part of the normal environment you work into, when you are always optimistic about your future.

To this approach, the moment you realize that your company ‘doesn’t need you’ anymore and its direction, even set by you now doesn’t depend on you, you are no longer a startup. That is the momentum when you need to become a leader, rather than a founder, which is promising lots of new challenges.

That doesn’t mean though that a company shouldn’t keep the mindset of a start-up. No matter the size or stage of the company or even if it has raised buckets of funding, if a startup retains its identity through growth, it should be considered a startup.

Nowadays, the rule of big no longer beats the small, and startups know that. In fact, the fast beats the slow. Startups sprint towards their goals while big companies are busy writing policy manuals. Google, Facebook, and Twitter are no longer small companies, but they maintain as best as they can that startup culture in their DNA, and that’s what keeps them at the front of their industry. They look at the world in ways that allow them to unleash their true creative potential, while trying to figure out how to forge ahead in spite of their demons.

So, as long as you provide value for your clients, you can define yourself as whatever you want, as ‘at the end of the day, it’s all semantics: a company can really rock any label it wants’(Hall,2011).

 

References

Blank, S. (2010 January). What’s A Startup? First Principles. Retrieved from https://steveblank.com/2010/01/25/whats-a-startup-first-principles/

Hall, M. (2011, February) .When Is A Startup No Longer A Startup?. Business Insider. Retrieved from http://www.businessinsider.com/when-is-a-startup-no-longer-a-startup-2011-2

Linkner, J. (2012, April). Think Like a Startup. Forbes. Retrieved from http://www.forbes.com/sites/joshlinkner/2012/04/16/think-like-a-startup/#4aaa6c8065d0

Robehmed, N. (2013, December).What Is A Startup?. Forbes. Retrieved from http://www.forbes.com/sites/natalierobehmed/2013/12/16/what-is-a-startup/#eb298094c63f

Ebbert, J. (2013, February 8). When Is A Startup No Longer A Startup? [Web log post]. Retrieved from http://adexchanger.com/online-advertising/startup-no-longer-a-startup/

Nguyen, T. (2015, August 20).At What Point Is Your Business No Longer Considered a Startup? [Web log post]. Retrieved from https://blog.ringcentral.com/2015/08/at-what-point-is-your-business-no-longer-considered-a-startup/

 

 

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One thought on “When a Startup is no longer a ‘Startup’?

  1. In fact, this is a question that I had. I was wondering of the criteria that turn a startup into a larger business. For me, the concept of growth is what differentiates a startup from bigger businesses. For instance, when you expand your workforce, when you move to a bigger office space, when you break new grounds to technology, when you become more and more innovative, then maybe your startup is no longer a startup.

    The question “How many years define a startup” is a critical one. Maybe this has to do with the financial maturity of the organization as well (not to say primarily). Being financially secure means to have the ability to seed money to scale your customers, your staff, your production line…and, finally, your profits!
    I agree with what you are saying about ridged rules. Apparently, there are no rules that change a firm’s status from a startup to an autonomous one. What I think is that the concept of a startup it’s more about an idea, a culture. However, I keep asking myself “Is it a good idea to call your business ‘a startup’ even if it functions for 6 or 7 years?”. Well, personally, I have connected the term “startup” with something new, innovative that has the potential to be a small and then a larger business. Being stuck in the ‘startup’ concept, just makes me wonder “for how long? You have to move to the next step. You have to ‘grow up’”. What I mean is that the startup ecosystem has been created to expand the notion of entrepreneurship by using innovative ideas so it is good to move on and make some space for others too.

    Anyway, really interesting topic as there are a lot of people who wonder “When a startup is no longer a startup”.

    Like

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