When we hear the term ‘startup’, our minds immediately jump to young innovators with wild ideas, hell-bent on changing the world. Maybe you think about Steve Jobs engineering the first Apple computer from his garage in 1975, or Mark Zuckerberg and his college roommates launching Facebook from their dorm at Harvard.
Although the term itself has only been around since the 1970s, the human urge to problem-solve through innovation and ingenuity has been around for much longer. Think of the invention of the printing press as far back as 1440 – an invention that revolutionised the dissemination of information, and a quintessential example of the startup mindset. Today, the term ‘startup’ embodies the same spirit of determination and innovation.
But, there’s a lot more to get your head around than that. The goal of every startup is to become a scaleup – to develop a sustainable business model and reach consumers on every continent. Nevertheless, it can be confusing: although most startups begin as small businesses, not all small businesses are startups – and very few startups will become scaleups.
In this article, we’ll examine a few different topics:
What makes a company a startup?
What do most startups look like?
Different types of startups
When does a startup become a scaleup?
What is a unicorn?
What makes a company a startup?
There’s a bit of debate surrounding the term, but the most commonly accepted definition of a startup is that of Eric Ries, the creator of the Lean Startup Methodology:
“A startup is a human institution designed to create a new product or service under the conditions of extreme uncertainty.”
There’s much more to it than that, of course.
- In comparison to a small business (many of which are happy to stay small) startups are laser-focused on growth.
- Startups are usually started by two or three founders capitalising on a perceived demand for a product or service. They’re usually offering something unique or innovative – on solving a problem.
- Startups tend to move through a series of funding rounds, from securing investment from family and friends (bootstrapping), to seed funding, to A,B,C and D funding rounds, to potentially progressing to IPO.
- Being a startup is as much about mindset as it is business structure. It means founders are willing to embrace the very real risk of failure, with resilience and the ability to adapt as crucial as the idea itself.
- Startups will almost always have a lean team, with people often fulfilling more than one function due to a lack of recruitment resources.
- In comparison to a small business, startups aren’t built to generate a profit right away. Instead, the goal is to generate excitement around the product or solution, leading to subsequent investment.
What do most startups look like?
The term ‘startup’ brings certain stereotypes to mind – the image of hoodie-clad millennial entrepreneurs in a trendy co-working space somewhere in Silicon Valley, fuelled by coffee and determination. However, startups come in all shapes and sizes, and the journey is far from one-size fits all.
Although most startups do originate in the US due to its sheer size and economic prosperity, there are plenty of other countries also getting in on the action. Europe boasts a diverse range of startup ecosystems in hubs like Berlin, London, and Stockholm, while the Asia Pacific region has also witnessed tremendous growth in entrepreneurial activity in counties such as China, India and Singapore.
While we associate startups with tech – and they all will use tech in one form or another – this doesn’t necessarily mean they’re all ‘tech startups’. This would generally mean a startup is developing or patenting their own technology, but their innovation might lie elsewhere, like creating a new healthcare product or even revolutionising the way we approach sustainable agriculture.
Here’s a few examples of different types of startups:
As we mentioned, tech startups are focused on developing and providing innovative technology-based products or services. This category includes companies involved in software development, hardware manufacturing, artificial intelligence, and other tech-driven fields.
Biotech startups operate in the field of biotechnology, working on advancements in healthcare, pharmaceuticals, genetic research, and other life sciences. They may focus on developing new drugs, medical devices, or genetic therapies. For example,
E-commerce startups operate in the world of online retail, facilitating the buying and selling of goods and services over the internet. They may operate through dedicated online platforms, marketplaces, or mobile applications.
Social impact startups:
Social impact startups prioritise making a positive impact on society or the environment. They often have a dual mission of achieving financial sustainability while addressing social or environmental issues.
Fintech startups focus on leveraging technology to innovate and improve financial services. This includes companies involved in online banking, digital payments, blockchain, cryptocurrency, and other financial technologies.
So, when does a startup become a scaleup?
In order to call itself a scaleup, a business must have proven its viability, and succeeded in stabilising its business model. For example:
- According to the Organisation for Economic Co-operation and Development (OECD), to be defined as a scaleup, a company must have seen average annualised growth of at least 20% over three years, and must have 10 or more employees at the start of that period.
- In terms of turnover, a scale-up is expected to generate between $1 million and $3 million, and must also have already raised at least $1 million.
- Most scaleups will continue to have strong growth ambitions, most likely with an international focus.
- While startups generally receive financing from third-party investors, scaleups generally receive support from large companies drawn to them by their maturity and proven success.
- Unlike startups, scaleups will have teams of people with specific as opposed to generalised expertise. This might mean they have different teams for marketing, recruitment, and other important business functions.
What’s a unicorn?
In the startup universe a unicorn is no mythical horse, though it’s almost as rare; it’s a privately owned startup that’s been operating for under 10 years, isn’t publicly listed, hasn’t been acquired by a third party, and achieves a valuation of $1 billion or more. This valuation is often reached through funding rounds that attract substantial investments, indicating strong investor confidence in the company’s potential. Unicorn startups you might have heard of include Uber, Airbnb, and Stripe. As of December 2023, there were only just over 1,000 unicorns in the whole world, with most of them based in the US.
To further enrich your startup knowledge, if you’re an aspiring entrepreneur embarking on your venture, check out our blog that offers insights into what qualities to look for in your first ten employees, or download our ultimate startup recruitment guide here. Alternatively, if you’re looking for employment within a startup, our tips on acing your next interview at a startup can provide invaluable guidance. Remember – the more you invest in learning now, the greater your chances of achieving success in the dynamic world of startups.
At GR4, we work with some of the most exciting and innovative tech companies across Europe and the US, and are always looking to expand our network. You can search all our positions here, or get in touch with a member of our specialist team for a confidential discussion.