What is a startup?
Is anyone you know building a startup company at the moment?
People working in the tech industry hear the term “startup” thrown around a lot, and probably personally know a person or two building their own startup ;)
However, most people do not really understand why startups are unique and so different from a typical small business or a large company.
Even investors sometimes do the same mistake of treating a startup as a smaller version of a big company, despite the major ideological and structural difference.
So what is a startup?
First of all, a startup is a business with a “BIG IDEA” and a GROWTH intent. A startup company usually begins with a talented person, or a couple of talented people, searching to prove a certain business model quickly, and in a way that will have a very significant impact on the market or even change it completely.
In this sense, a startup is driven by exactly the opposite intent from a small business, because typically, a small business’ intent is to provide steady, secure, long-term revenue, finding it’s place in the existing market.
Second, a startup is a TEMPORARY organization by its nature.
The main organizational function of a startup is to complete the following functions:
1) to come up with a product that includes certain features;
2) to create a series of hypotheses about all the pieces of the business model, which means to make educated assumptions about who the customers are; what the distribution channels are etc.
3) to quickly validate whether the model is correct by seeing if customers behave as assumed.
Once a business model has been proven, the function of the company needs to change from that of a startup to that of a large company, which is to produce outcomes and execute the working business model. If the business model is not working – it means that the startup has failed, and there is no justification for it to keep exciting either.
Third, a startup is an operation with a lot of RISK involved, because no matter how much research and time are invested during the pre-launch of a startup period, the founders are essentially making an educated bet. Investing all that time and money into a startup without knowing if the business model will eventually work is taking a huge risk. A small business is initially a much less risky operation, because the business idea has already been proven and fits in the existing, established market.