What is a Startup? (Definition, Types and Examples)
- Updated on 3 Jan 2024
- 8 min
The term “startup” has become increasingly popular in everyday conversations. You may hear it frequently throughout the day.
Along with “MVP” and “Agile,” these terms are now commonly used in casual discussions.
Despite their growing popularity, most people might find it challenging to accurately define these terms or explain their main features.
What is a Startup?
Let me say it loud and clear. Ready? Small business is not a startup. That is the main thing you need to know. There is a huge difference between startup and small business.
I would like to use the definition by Steve Blank. He is a Silicon Valley entrepreneur and Stanford business school professor. In his opinion, a startup is an organization formed to search for a repeatable and scalable business model. The small businesses, it turn, run under the fixed business model.
This information is vital in distinguishing. The startup founders are in charge of providing the vision of the product. Thus, they consider options of the most suitable business model of a startup. They take into account the company’s established budget, target audience and distributions.
These factors are especially important to define the cost of MVP development.
How Startups Operate
What I want to point out here, is that the startups are not only defined by the ideas they have. Sometimes I meet people who talk about startup founders from the wrong perspective.
They imagine either rich people, who launch startups for fun. Or they think of young people in a fancy office, who play video games and come up with several interesting ideas. But I want to put all these misconceptions to rest.
If you want to understand what startups really are, you need to look the way they work at first place.
Any startup begins with the idea and the gap in the certain market niche. Usually it’s a 1-3 founders’ dream. They want to embody it and share with the entire world.
The founders bear responsibility for the key operations. They do everything possible to give life to their idea. While the team, if there is one, means a lot, the main idea and focus of the company always run on its founders.
The main difference between startup and small business is their way of looking at the idea. Small businesses usually aim at an idea that can be applied at a certain location and market niche. Startups, in turn, set insights on an idea that is globally adaptable.
Startups are the newly-formed companies in their early stages of branding and sales. They are usually self-funded and are completely independent.
The startup founders can also look for an angel investor or use VC (venture capital).
The definition of startup is rather controversial. Yet, there are several main aspects of running a startup I want to mention here.
Startups and Innovation
The first thing that comes to my mind when I hear the word startup is innovations. It happens for a good reason though.
When we talk about startups, we do hear the phrase “disruptive innovation” once in a while. I am confident that the innovative approach is the key feature of any startup company. Most of them come into the market with a fresh, innovative idea to cover customer specific needs.
Some startups find a room for innovations even without having their unique product. They can develop new markets or innovative channels to distribute an existing product.
Indeed, the startups are not about young programmers or entrepreneurs. They don’t define your age, but only your ideas and approach. Once you stop being innovative, you stop being a startup founder.
But in order to effectively bring these innovations to life, founder needs to effectively build startup project management.
Solving Pain Points
Every startup solves a problem and make our world a better place to live in. If you have an idea, look into the way it can become a useful product or service.
Focusing on Growth
Startups are the companies that need to grow fast. They create a product to introduce it into the large market and have as a high number of sales as possible.
A fast growth focus is a distinctive feature between startups and small businesses. The last ones may prefer to stay small and be happy about it. Startups are designed to grow and scale.
That is the main reason the majority of startups are tech-oriented. The technology startups are able to reach a large market. It happens because they offer products anytime and anywhere. They are more likely to face rapid growth and, thus, become more attractive for investors.
Dealing with Uncertainty
Startups always face uncertainty. It happens because their innovative ideas and approaches lack a business model. Any new business is a risky venture. Yet, startups future in particular depends on various internal and external factors.
Startup business usually comes with more questions than answers. It has no defined business model and a certain way to scale. Startups are always about experimenting and testing various theories.
Finding Product-Market Fit
Usually small businesses already know their product-market fit. A small restaurant may have a clue about its target audience and understands the market fit. Startups often don’t. They are always looking for their ideal audience and try to understand their demands.
The startup founders keep searching for a suitable product-market fit. They track the key metrics like LTV (customer lifetime value), COCA (cost of customer acquisition) and average sales cycle length.
What a Startup Is Not
To understand what is the definition of a startup it is better to use reverse logic. Here are some aspects of any non-startup businesses.
Stage of the Product
Startup companies usually start from scratch. They have only an idea of the product or their product is at the earliest step of developing. If the company deals with an existing product, it is not a startup.
There are various franchise companies or companies with a copied business models. They are not startups. Startup business model stays eccentric for a long time. It is unknown until the founders find a suitable one for their product.
Number of Employees
A startup company usually doesn’t have many employees. There are no particular data on how many employees should or shouldn’t a startup have. But this number cannot exceed 100.
4 Types of Startups
Steve Blank is confident that the first step the founders should take is to find out what is their startup type. In his opinion, there are four types of startup businesses. They have very different requirements to become successful.
Entering an Existing Market
Startups can enter an existing market, offering a more efficient solution. It means that your product is similar to the competitor’s one, but is better. In this case, the market is easy to evaluate. You know its users and, what is more important, your competitors.
Creating a New Market
Startups can also create a brand new market. They can introduce something that was never created before. Otherwise, they can make the price for the similar product low enough to attract a new class of users.
The main advantage of creating a new market is that you have no competitors. The only thing to be aware of is other startups picking up your idea. But there are also disadvantages — there are no defined users and market. The main problem here is not facing the competition. It lies in ensuring your customers that your product is worth paying for.
Resegmenting as a Low-Cost Competitor
Startups can re-segment an existing market as a low cost entrant. Thus, you can offer customers a similar solution, but at a lower cost.
Resegmenting into a Niche
Startups can also re-segment an existing market as a niche player. You can enter the existing market by offering the solutions to cover customers specific needs.
Understanding the market types of startup helps you to evaluate customer needs. Thus, you find the way to supply the customers with your product. Steve Blank says that every startup company should keep testing its product. It has to ask itself “What kind of startup are we?”
Is a Startup Right for You?
There are several questions you need to answer before launching your own startup.
Are You Self-Motivated?
The most important thing for every startup founder is motivation. When you work for a company and get paid every week, you can be motivated by salary, team or everyday tasks. But when we talk about launching your own startup, it takes a lot of passion towards what you do. You should be ready to risk everything for the sake of your idea.
Are You Ready to Work Hard?
Startup business presupposes the readiness to work hard and bear responsibility. Your decisions should be wise and lead your company to growth. You should be 100% involved in your business and never let anything distract you.
Are You an Innovator?
You should be innovative to make your startup successful. What I mean here is that innovative mindset doesn’t end in the idea. In this business, every process needs an innovative approach. Whether it is searching for a market niche, distribution channels, or tools to use.
Are You Eager to Learn?
Sometimes, all it takes is to learn and listen to entrepreneurs, who are successful. It doesn’t matter if their business is a startup or not. The successful businessmen have a lot to tell. Listening to them will let you not to fall into the same trap they once did or almost did.
Experience means a lot in every business. If you are ready to learn, try to find people with business experience and learn from them. It’s okay to be not sure about your idea or be unable to understand how to start. Then, you can always ask for advice in incubators and accelerators.
Famous Startup Examples
Sometimes people ask me about my personal favorite startups. But I don’t want to confront you with a detailed list. So here are three startups that are an example of innovative and helpful solutions we use.
Once started as a startup, Uber has become one of the most famous unicorn companies ever. The company’s founders had an innovative idea, strong focus and realistic expectations.
It is a recipe for success. Uber lost its startup status long ago. But I am still analyzing its impact on the market, since more and more its clones are emerging every day.
The story of DropBox startup is just about making our life better. The startup founder, Drew Houston, experienced the gap in the market himself. He usually forgot his USB flash drive at home. Thus, he came with an idea how to make his own life easier. As a result, helped thousands of people and grew up a $10 billion company.
An AirBnb startup story is also a good example. No one thought that such an idea as AirBnb would become successful and profitable. But while the investors kept being skeptical, the founders knew it would work. They believed in their product so much, that even started to sell the breakfast foods under their own brand to raise money. That is what I call an innovative approach. Today, AirBnb is a successful $1.3 billion company known all over the world.
Starting something new can be scary. But you’ll never get ahead if you don’t take risks.
With technology moving so fast these days, timing matters more than ever. If you wait too long, someone else may make your idea happen before you do.
If you’ve got an idea for a tech startup, act on it now.
Our experienced developers and designers can help turn your idea into a real product.
Schedule a free call with us to start mapping out your idea!