In today's business world, the term startup has gained considerable prominence, especially in the technology sector. These emerging companies, designed to grow quickly and scale, are often associated with innovation and disruptive business models. But what sets a startup apart from other companies? In this article, we'll explore in detail what a startup is, how it is defined from various perspectives, and what distinguishes it from a traditional small or medium-sized business.
What Is a Startup?
A startup is an innovative company designed to grow exponentially and scale across multiple markets. In its early stages, it will face considerable uncertainty about the ideal product and business model to support that growth and scalability.
Typically, this exponential growth is driven by technology, which allows the company to keep operating costs lower than those of a “traditional” business, such as a restaurant, factory or retail chain.
Another important component is that a startup can be a “fund returner” for its investors. In other words, its funding cycle (if the founders choose to pursue one) can generate returns for the venture capital industry, the asset class to which startups belong.
What Is a Startup? Definitions from Experts
The definition above is our definition at Startuplinks. We developed it based on the definitions of 2 highly regarded people in the international startup ecosystem, as well as our own experience.
The 2 definitions from the experts mentioned above are:
“A 'startup' is a company that is confused about: What its product is, Who its customers are and How to make money” Dave McClure, co-founder of 500 startups.
“A startup is a company designed to grow fast” Paul Graham, co-founder of Y Combinator.
What Is Not a Startup?
Now that we've defined a startup, we'd like to clarify what it isn't.
- SME. As a rule, not all SMEs are startups, because they don't meet all the criteria. However, every startup is an SME at some point in its life cycle, because it meets all the criteria for being one.
- A company that develops software. A software development company doesn't qualify as a startup just because it develops and launches its own products, unless it is treated as a spin-off and adopts the full venture capital model. However, software development companies often work on internal projects that aren't designed to scale or operate independently of the software company.
- A company that is just getting started. A company isn't classified as a startup simply because it's just getting started. It's true that “startup” can be interpreted in Spanish as a project that's just starting up, but in the world of venture capital, the word “startup” is not translated from English into Spanish.
- A technology application or platform. There are so many technology applications and platforms today that not all of them qualify as startups simply by virtue of existing. To be considered a startup, they must meet all the proposed criteria. Keep in mind that a platform may be highly innovative, but if it doesn't meet the other criteria, it can't be considered a startup.
Examples of Startups
Below are examples of popular companies and our opinion on whether or not they are startups.
- A new Uber. Today, building a copy of Uber wouldn't be a startup because it wouldn't offer any new innovation, there would be no uncertainty about the product or business model, and there is already a lot of competition among these types of platforms.
- Platzi. In its early days, it was indeed a startup, and today it is a scaleup. If someone decided to launch a new Platzi today (in 2024) with the same features, we'd need to look closely at what differentiators they would offer to make it highly innovative compared with existing offerings and, therefore, qualify as a startup.
- Rappi. In its early days, it was indeed a startup, and today it is a unicorn company. If someone decided to create a new Rappi today (in 2024), it probably wouldn't be a startup because, like Uber, it's a proven model with a lot of competition.
- Starbucks. Although it operates internationally, it most likely wasn't a startup in its early days. It had a significant physical product and retail location component, which made it difficult to scale and achieve healthy margins (fund returner).
- WeWork. In Startuplinks' opinion, WeWork should never have been treated as a startup. However, venture capital investors chose to treat it as one, and we all know how that story ended.
Conclusion
A startup is a company that meets all of these criteria:
- An innovative company.
- Designed to grow exponentially and scale across multiple markets.
- In its early stages, it will face considerable uncertainty about the ideal product and business model.
- Financially, it can be a fund returner.