The Now: What are Startups?

Lesson 24: What are Startups?


What are startups?

Watering plants to represent startups

Building your own business can be a fairly difficult thing. There's a lot of money needed and plenty of risk involved. But a trend that's been growing steadily in the past few decades is the rise of startup companies (more commonly referred to as simply startups).

Startups are high-risk businesses featuring a product or service that's aimed at fulfilling a specific need in the marketplace. Most of them are technology oriented and focused on growth potential. Some pretty recognizable businesses began as startups, including Uber, Airbnb, Spotify, and Snapchat.

How do startups get started?

A startup usually begins with an individual or a small group of people who have an idea that would fulfill a specific need. In the case of startups like Uber and Airbnb, the need was cheaper and more convenient than services like taxis and hotels. The idea is then turned into a tangible model of the service or product, usually called a prototype.

The prototype is then used to try and secure funding. Typically, startups are funded by private investors or firms that see promise in the startup and its service. If a startup is able to find funding, the next step is to develop and launch its product.

From here, the startup can either succeed or fail. There are a number of reasons a startup can fail. Namely, startups need to not only have a large amount of users that grows over time, but these users also need to continue using the service. The startup also needs to find a way to make money from these users and balance this with when and how fast it grows.

For a more detailed step-by-step process, you can read this article on how to start a startup.

How are they different from other small businesses?

At a glance, startups may seem pretty similar to small businesses, but there are a few key factors that set the two apart. Most small businesses interact with a smaller market than startups do, due to them being local, appealing to a niche audience, or other reasons.

Small businesses also receive a majority of their funding from non-investor sources, like loans, grants, or the founder's own money. They typically focus on long-term stability, instead of the riskier approach startups take.

When are they no longer startups?

If a startup is successful and grows enough, there comes a time when it will no longer be considered a startup. The following is a list of criteria that would generally qualify a business to no longer be labeled a startup:

  • When the startup is acquired by a larger company
  • When revenue is greater than $20 million
  • When the company has more than 80 employees
  • When there are more than five board members
  • When the original founders have sold their company shares

In recent years, startups have been sprouting up at an enormous rate, and there aren't signs of them slowing down anytime soon. As new technologies continue to emerge and improve, startups will seek newfound uses and public needs for them.