The term ‘Startup’ has been thrown around with increased frequency over the past few years. It’s become the new ‘sexy’ way of describing your business/hobby/piece of software/concept. The problem is that it’s used in so many facets that I don’t know what it actually means anymore.
The Government thinks Startups are just small businesses. TechCrunch labels them as anything from a small, non-revenue generating app through to multi-billion dollar companies like Uber and Slack. On the other hand, business advisors simply define them as a stage in the business lifecycle.
So what is a Startup?
According to the Oxford Dictionary, a Startup is “A newly established business.” Insightful…
Tech entrepreneur Steve Blank defines a Startup as: “A temporary organisation built to search for a repeatable and scalable business model.” I imagine that ‘temporary’ is emphasised because a Startup’s goal is to cease being a Startup and graduate to being a large business, or fail and move on to another opportunity.
What’s confusing and somewhat contradictory is that a business can be in varying stages of its life and still be called a Startup. You could just have a MVP with no idea of a revenue model and be called a Startup. Compare this to Uber which is still called a Startup, despite at last valuation being a $40B company.
Based on my research and experiences, there are three critical factors that I think separate a Startup from a ‘traditional business’.
1. The ability to rapidly scale
A Startup is a company designed to scale very quickly. It is this focus on growth unconstrained by geography which I think differentiates Startups from small businesses. For example a new restaurant out of Brisbane is not a Startup, but a food ordering app like Brisbane’s Street Eats is.
In recent years we have been equating Startups with tech companies as if they’re part and parcel. Although Startups do not have to be tech orientated, they’re commonly intertwined because leveraging technology enables companies to reach large markets and traverse time and geography. In other words, customers can buy from you or use your product regardless of what time it is and where you are in the world.
2. Possess a mindset and culture to constantly innovate
Founders protest that a Startup is not defined by unit economics or value and that a Startup can remain a ‘Startup’ at all sizes and maturity.
Startup culture is focused around hustle – that is, the drive to constantly improve, innovate and disrupt on a grand scale. It stops being a Startup when people don’t feel as though what they are doing has impact. This leads me to my third and final point.
3. Solving MASSIVE societal problems
In principle, all businesses solve problems to an extent – they solve problems of supply and demand. Traditional businesses, however, operate in mature markets and execute known business models.
Startups are different because they aim to solve critical societal problems. They search for an unknown business model in order to disrupt existing markets or even create new ones. Startups revolutionise, influence and ultimately transform the way its end users behave, react and adapt.
What’s interesting about this discussion is that the monopoly corporations that we all know and do business with today were Startups once upon a time. They got to where they are today because they were (and still are) solving critical societal problems.
For example, the concept of a ‘supermarket’ revolutionised the way we bought food. At the end of the 19th century, buying groceries included the following steps for the average household:
- A stop at the butcher for meat
- A stop at the fruit store for fresh produce;
- A stop on the street to buy milk from milk wagons; and
- A final stop at the local grocer, who sold canned goods and condiments.
The ‘big box model’ of supermarkets solved a problem (a problem consumers may not have even been aware of) by introducing convenience and price efficiency with economies of scale.
Now, food ordering Startups like Hellofresh are disrupting supermarkets by taking convenience to the next level by offering the delivery of recipe ingredients and fresh produce directly to your door.
By way of another example, consider taxis for a moment. The first taxis were solving a problem by allowing ordinary people to get from point A to point B without having to mortgage their house to buy a car.
Uber is disrupting this model by allowing mortgage bearing car owners to provide rides directly to their relatively unencumbered peers for a fraction of the price of a traditional taxi ride. Again, disrupting convenience and price with…additional convenience and price.
As consumers, we constantly crave superior products and superior service at a lower price. It’s the human condition to constantly improve and demand a ‘better’ quality of life. Businesses that can fulfill these unlimited wants, and better yet be at the forefront of transforming the way consumers behave, will be the ones that ‘make it’.
So what’s my point?
You can call your business or Startup whatever the hell you want. Personally I think the term Startup is just a fad. Just like the Icebucket challenge, Kanye West and the Paleo diet.
If you have a great repeatable and scalable business model, you have a great business! If your business isn’t repeatable and scalable, but suits your lifestyle and makes you and your customers happy, it’s still a great business!
But consider this – business models will continually evolve with the progression of technology and changing consumer habits. Software and tech will become so ubiquitous that Startups will become synonymous with normal business.
It takes clever people with dreams to solve critical societal problems and valuable insight to evolve technology and fundamentally alter the way consumers behave. To quote Steve Jobs: “The people who are crazy enough to think they can change the world are the ones that do.”
So what are you waiting for?