Defining A Start-up (Why we don’t call it small business)

From-Startup-tp-Grown-up“One thing we can agree on:  The key attribute is its ability to grow. A start-up is a company designed to scale very quickly. It is this focus on growth unconstrained by geography which differentiates start-ups from small businesses.” – Paul Graham, Y Combinator Accelerator Head.

The term start-up refers to companies that have been recently launched, generally in their first 3 to 5 years of operation. However this is not a hard set rule, companies could take longer or exit the start-up phase faster. It also seems there is consensus amongst thought leaders that explosive growth is paramount to meeting this definition.

It became a popular term during the dot-com bubble of the late 90’s, when technology companies were under high demand from investors. This misleads many people into believing that start-ups can only be information technology companies. The reality is that a company from any industry vertical can be a start-up, as long as it’s a new business that uses innovative methods to grow really fast and is not limited by geography.

Scalability is to a start-up, what a racket is to tennis. You’re simply not in the game if you don’t have it. So no, your uncles’ coffee shop on 5th avenue is not a start-up, unless it’s scaling like Starbucks. You want to build a company that fulfils the specific needs of your immediate community? That’s great! but it’s no start-up.

Start-ups; we don’t call these types of businesses “small business” because they never small for very long. There is strategic intent to pursue growth. The iterative process of going back to customers and finding out what’s needed to improve, then improving and get more customers, is core to what this type of business is. The entire business model is specifically designed to maximise growth. The initial size allows for flexibility with much less bureaucracy, this enables start-ups to take advantage of opportunities much faster than established corporations. The growth attracts funding and funding can buy more growth which attracts more funding until the beast has matured.

Some successful founders have stated that they would define a start-up by the culture a business has developed. Namely having a dynamic culture in which most if not all the employees, feel like they have a big impact and work collaboratively to deliver that impact. I disagree with this view; I agree that there is a start-up culture. However a company may or may not be a start-up even if it has a start-up culture. Put differently, all start-ups have a start-up culture because it is core to their strategic intent but non-start-ups can adapt this culture as well. Achieving such a culture is fast becoming the holy grail for large corporations that want to rejuvenate and keep up.

In summary, start-ups are defined by scalability, the tool used to achieve it is innovation, and the inherent advantage is flexibility.

The stance communicated here is my own; however as a member of a team currently running an Incubator Accelerator, my colleagues and I thought it important for ourselves to discuss this definition. As it speaks to the type of businesses we wanted to create at the Cortex Hub. In our discussions we had very similar views and have used this definition as the core of our business take on acceptance criteria. I think this highlights the importance of the definition and the impact of its interpretation.

4 replies
  1. Malusi Gcakasi
    Malusi Gcakasi says:

    Nicely done Champ!

    I think startup definition is, at least partly, born from a lack of definitions. Like you say, they can’t be called small businesses because, in the internet age, that definition just hasn’t kept pace with the realities of the scale of these business. Twenty years ago, it would’ve been unheard of to be serving millions of customers on a staff of less than ten people. Today, it’s becoming the norm. You also can’t call them big businesses because, despite the fact that they’re pulling in millions, they’re still made up of only ten people :/

    Not that size has anything to do with it, but I think it illustrates just how much our views of what a company is has changed recently.

    Well written bud, it’s been good being part of these conversations with you.

    Reply
  2. Bridget
    Bridget says:

    Congrats, on a good article. Really a well articulated piece of writing. Building with an aim in mind doesn’t make one wrong and the other right, but it does mean, you can fully align your objectives with your outcomes in an intentional way! Nice Mr. M

    Reply
  3. Siya Dilimeni
    Siya Dilimeni says:

    Great and refreshing read with insightful critique.

    I think that the definition of small business, as it is currently, that mainly deals with size (employee numbers), turnover and assets needs to be considered. It is understood that start-ups, though, are a totally different type of business in the current day compared to aged thoughts regarding small business but unfortunately at sometime most still fit in the category. Which introduces this great point which (mentioned in the article and comments) is the fact the scalability has allowed start-ups to serve multitude more consumers than traditional small business. Maybe, with time, this same point would be considered in the definition of “small business” which eventually would totally exclude start-up’s from this category.

    Also, I firmly agree with article’s views on start-up culture. This culture is being vigorously adopted by large organisation’s. A lot of them though, frequently use the term “entrepreneurial culture” or “entrepreneurial spirit” to slightly mean “start-up culture” or something similar. We have recently seen big org’s like FNB, push the idea of innovation. Driving internal employee innovation hubs that incentivise employees. And many more are following suit because of the pressures.

    Lastly, I believe more and more start-up’s will be the demise of many large stagnate corporations.

    Reply
    • Malusi Gcakasi
      Malusi Gcakasi says:

      Agreed.

      I think as startups continue to evolve, and enterprise continues to see the earth shattering returns of organisations like Google, Apple and Amazon, more and more of them are going to want to continue to move to modes of operation which allow them to be more nimble, more innovative and meet customer needs in as focused a manner as really good startups do.

      I think that there comes a core Dilemma with all of this. To take a leaf from Christensen book, larger organisations simply can’t justify doing the things that startups will to make a sale… I don’t think that this is just about the organisational size, but being willing to change the operating model on a whim is a dangerous thing for multi-million dollar businesses to do.

      It’s difficult because with this, they’re stuck between a rock and a hard place. If they don’t change, they’ll kill their business in a few years time. The required change though may be so fundamental, that it would effectively destroy the organisation. I think, with this in mind, startup culture is sexy – even for enterprise – but finding a way to transition to it is hard…

      If Oracle, Cisco and SAP are anything to go by though… Startups that manage to solve the meta-problem of making enterprise work are in for A HUGE reward.

      Reply

Trackbacks & Pingbacks

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *