A startup is a new type of company which mainly relies on technology. Even though the idea might be small to begin with, it has the capacity to change the world we live in.
Startup entrepreneurs focus on creating unique, competitive products or services for the marketplace. Like small businesses, they are frequently financed by the founders themselves (or their inner circle) at the beginning.
As they gain momentum, the team finds investors who are willing to take the risk and put a lot of money into the company. The risk is great, but so is the reward.
The investors provide funding in exchange for equity, or partial ownership of the business. They are looking for a return on their investment. In other words, if the startup makes a lot of money, so will they!
Many new entrepreneurs also seek support through incubators or accelerators. These organizations provide things like funding, mentorship, coworking spaces, and other resources. You can read about the basic differences between incubators and accelerators here.
Eventually, the goal of a startup is to run a “liquidity event” in which equity will be converted into cash. During this event, one of three things will happen. The startup will: (1) be acquired by another company, (2) merge with another company, or (3) “IPO,” meaning that the public will have a chance to buy stock in it.
How do you know if the startup model is a good fit for you? Some people enjoy working at one for the following reasons:
The cons of a startup really depend on the choices that you make. Long hours of hard work can lead to burnout, and arguing with a co-founder over the direction of the company can end a friendship. But the biggest downside is the possibility of failure.
As Albert Einstein once said, “A person who never made a mistake never tried anything new.” If you are an entrepreneur with an idea for a startup, you need to be comfortable with the very real possibility of failing.
The fact is that 90% of all startups fail. An even lower percentage makes a profit!
Facing these odds, why does anyone pursue their idea for a startup?
Like the investors who believe in you, if you do succeed, the payoff is enormous. Top earners make six-digit salaries or even more. Every so often, a startup becomes a “unicorn”—meaning it’s worth at least $1 billion!
While startups are increasingly common, it’s like taking "the road less traveled." You don’t know what to expect at every turn, or even where your career path will lead you.
It can be intimidating and exciting. Successful entrepreneurs often have multiple ideas—most of which fail—and then one that finally works. And you just need that one bright idea to change your life and the world around you.
To learn more about entrepreneurship, continue on to the next lesson in Entrepreneurship 101, That First Spark.