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.

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