What is and isn't a startup?
In this post I will find possible definitions and will present a way to easily understand the differences between a small business and a startup.
Wikipedia says "a startup is a business designed to develop and validate a scalable business model". This is similar to the Steve Blank definition “a startup is an organization formed to search for a repeatable and scalable business model". Quora's article What is the difference between starting business and startup says "other businesses are driven by profitability and stable long-term value, while startups are focused on top-end revenue and growth potential. Neil Blumenthal, cofounder of Warby Parker in the Forbes Article What is a Startup, says “A startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed” and Y combinator co-founder, Paul Graham says "A startup is a company designed to scale very quickly. It is this focus on growth unconstrained by geography which differentiates startups from small businesses."
The common threads from the comments above are that a startup is focused on; scale and growth over profit, trying something new and innovative, and searching for a sustainable business model.
- Focus on scalability
- Growth over profit
- Trying something new and innovative
- Searching for a sustainable business model
Steve Blank’s three-minute definition provides additional context and background to these views.
It is this larger risk and reward that attracts investors to startups. Early stage investing in startups is very risky with more than 70% of investments resulting in a loss of all the investors money. In order for an Angel Investor to have a return from their investments they need each investment to have the potential of a big exit. Startup founders may think an investor wanting to receive 20 times their investment money back is being greedy but the maths of a early stage portfolio requires this to have a chance of a positive overall return.