What Is a Startup?

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These days, we hear the word ‘startup’ all the time, but many folks don’t actually understand what a startup is. To be fair, the term is a bit nebulous -- largely because it’s so overused.

In this article we’ll outline what exactly a startup is, how startups are typically funded, and how they differ from other types of businesses. Let’s dig in!

What Exactly Does the Term 'Startup' Refer To?

In its simplest form, a startup is a company with a business model that supports innovation. For example, if you were to develop a software program that addresses an unsolved widespread problem, create a business plan and acquire funding, you’d be a startup owner!

As the term implies, ‘startup’ is not a permanent phase for any business -- nor does it solely refer to companies in the tech sphere. It’s a vital, early stage of the business life cycle, and can refer to virtually any industry.

In general, startups tend to have few employees and fast growth potential. They provide products with widespread appeal that either don’t exist yet, or solve a problem better than the options currently available.

A Brief History of Startups

Startups haven’t always been viewed in a positive light. Many people blame the events of the Great Depression for reckless startup investing, which led to legislation restricting the way unregulated companies could advertise for investors. Since then, startup funding has largely been provided through venture capital or “friends and family” investors (more on this in the next section!)

The modern-day popularity of startups has its roots in the dot-com boom of the late 1990s. Investing in small-scale businesses was extremely commonplace during the rise of the internet -- which is also the reason many people associate startups with tech firms to this day.

How Are Most Startups Funded?

As mentioned previously, startups are typically funded by the startup owner’s friends and family, or by venture capital firms. These firms, which gained popularity in the 1970s, provide seed money from a group of investors and mitigate risk by pooling together to fund a variety of startups.

That said, the rise of crowdfunding has largely revolutionized the way startups are funded. Crowdfunding allows people from around the world to invest in companies using a tiered reward system that provides equity in return. Some niche crowdfunding sites are aimed solely toward startup funding, but even mainstream crowdsourcing platforms like Indiegogo offer equity-based funding opportunities.

What Does 'Startup Culture' Mean?

The modern workplace is becoming less formal every day. “Casual Fridays” have morphed into “casual everyday” in many offices, a trend that originated in the startup sphere.

“Startup culture” is a bit of a catch-all term that’s often used to describe any company with a relaxed, fun and cooperative work atmosphere. The startup-culture mentality has expanded far beyond small Silicon Valley tech firms and into major corporations. Today, companies like Amazon and MasterCard offer their employees perks like casual dress codes, relaxing work environments, recreational activities, and more. Employers like these believe that the “cool office” trend actually leads to increased productivity, because employees are able to focus more on their work than adhering to formalities.

The next phase in the development of startup culture might be to make communication more casual. The email-centric communication structure of the dot-com days is being largely replaced by real-time collaborative intra-office messaging services like Slack, which more accurately represent the way we speak in casual conversation.

Fast Facts About Startups

There’s so much more to be said about startups, but I’ll exercise some restraint and pick just a few of my favorite facts:

  • Startups are companies designed to grow rapidly and scale upward without geographical constraints. This is the primary differentiator between startups and other young businesses.
  • Most startups’ expenses exceed their revenue, which is why so many of them require external financing. Without it, there would be no way for these companies to effectively develop and market their innovative products or services.
  • Oftentimes startups are built around an exit strategy -- they’re designed with the end goal of selling the company to a larger corporation.
  • Many startup owners are “serial entrepreneurs.” They’ll come up with a startup’s initial idea, put in the work to get the ball rolling, then hand off the day-to-day responsibilities to someone else so they can focus on launching one of their other startup projects.

In Summary

“What is a startup?” isn’t as simple a question as it may seem. The definition of a startup varies depending on who you ask, although there are some common characteristics that apply across the board.

Generally speaking, if a company lasts more than a few years, has more than a handful of employees, or is generating multi-millions in revenue, it’s probably grown past the startup phase.

If you want to know more about any aspect of startups or startup culture, we have a wealth of information here at Startup Savant. Whether you’re looking for information on forming a specific business structure, details on business service providers to help your startup grow, ideas for branding and marketing your new business, or much much more, you’ll find it all here. Cheers!

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