When creating a new business, it's important to get the basics right. This comprehensive description of everything entailed in a startup (with some real world examples) will get you on the right track.
Startups are newly created businesses that seek to provide a unique set of results within a certain area or industry. As easy as this beginning definition is, startups are not always well defined. So what exactly is a startup? How are they different from regular companies? How do startups operate differently and effectively?
What is a Startup?
A startup is a business that has entered the initial stages of operation by a team of entrepreneurs. As far as business operations are concerned, this is the very first stage of a business. The businesses are composed of a team of people which can often be very small - sometimes even one or two people at its very early stage.
Startups are usually run by passionate entrepreneurs that have a set goal in mind for the success of the business. This person is usually given the title of Founder or CEO and has a skillset that brings overall value to the team and has solutions in mind to excel the business.
The main aspect and purpose of a startup is to grow at scale. From the very first day of its formation, the point of the business is to grow beyond a scale that they could envision at that time. As the startup attempts to grow, the Founder (or other members of the team) seek to generate 'problem' scenarios and discover solutions to these through the startup. Within the initial launch, certain goals should be attained to generate long term success, including a minimum viable product (MVP) or prototype, a concrete set of design principles, and a set of operational principles.
How is the Business Model of a Startup Different?
All startups are businesses but not all businesses are startups. The truth is, there are many types of business, from startups and small businesses, to large businesses and corporate entities. Each of these business types or models have some similar components but a startup stands apart from all of these.
- Business Growth: companies traditionally want to grow but a main aspect of a startup is that business growth is an absolute high-priority must within their metrics and expectations. Some businesses might have growth as part of their goals, such as a large company wanting to turn into a corporate entity. Other businesses like Limited Liability Companies (LLCs) don’t necessarily need to grow as their purpose is only to be established and have a “business face”. Startups have long-term scaling in mind and therefore must grow exponentially to capture the success they desire from their initial creation of the business.
- Operations: Startups operate much differently than most other companies because of both their limited resources and the multiple roles of the team members. In most cases, startups don't have the proper facilities in place like large businesses or even SMEs. Startups have a more informal approach to business operations like lack of dress codes and payroll setups. For integrations, startups might also have smaller IT departments. The purpose of startups is to disrupt an area they are operating in instead of perhaps a small business that creates an effective market return.
- Principles and Goals: Startups will usually have a clear and concise set of principles and goals that are individually followed by the teams within the company. These principles can be broad and varied, but usually consist of a lean startup profile to help determine how a startup can operate in form and function, and when they are faced with certain challenges as they are limited on resources. Startups also need to have goals for establishing market valuation and long term decision making. Small businesses in contrast may not have a need for goals while larger companies and corporate businesses may already have a mature set of these principles.
- Funding: Startups have to manage funding to help their operations run at the scale of their principles and goals. Larger companies typically do not need funding and get their fundraising from their own capital production, while small businesses typically don't have the overhead that a startup might require. It is important for a startup to discover the best fundraising options available to them.
On InnMind, startups can start with a free account and access a whole network of investors to find the ones that match their company ideals.
The Startup Business Model Workflow
Startups are very unique in the way that they operate behind the scenes. The overall workflow of a startup is much different from other business - not just because the growth is paramount to the success of the startup, but each team member of the startup must be passionate and work toward this success as well. This workflow prioritizes growth and solutions over everything else, even sometimes monetary success. Team members can often work long hours and will (sometimes) enjoy doing so.
Most importantly for this pursuit of growth is the principle of refining solutions until they can become demonstrated repeatedly and successfully. Once a startup has managed to find a refined solution and produce it at scale, a startup has started to mature. It is important for the workflow of a startup to progress toward this goal.
Do Startups Need Funding?
Startups usually require funding or fundraising from either an investment company, bank, or from an angel investor. One of the reasons for this is startups desire to work at a much larger scale than they currently are. Some of the aspirations of a startup require the money and resources in order to achieve their goals. It is not uncommon for startups to raise tens of millions of dollars or more to get the funding they need. Although it's good for startups to have an MVP or prototype of their product or service for fundraising, it is not a requirement in most cases. There are many things to understand about fundraising for a startup.
Fundraising and investing for startups can be a very crucial part of the startup process. It's important that a startup not only find the right investors and fundraising companies like venture capitalists (VCs), but also be prepared to answer the right questions and bring proper statistics and solutions in order for fundraising companies to take an interest in them.
InnMind offer workshops and VC Pitching Sessions to help startups navigate this fundraising journey.
Examples of Successful Startups
Startups can come in all shapes and sizes but it’s worth sharing some real-world examples and statistics of startups that became very successful. The bad news is that 90% of all startups eventually fail, with 30% closing the doors within the first two years. After five years of operations, most startups have a 50% chance of survival. Despite this high failure rate, it's important to reiterate the importance of growth and solutions within a startup as progress will help determine longevity.
Despite the high failure rate of startups, many of the most popular businesses today were startups from the outset of their creation:
- Instagram: The photo sharing social media company began as a startup in 2010 by Kevin Systrom. The company started under the name Burbn and managed to get over 25,000 users added per day before it became internationally successful. A large part of the success of Instagram focuses on the larger solutions they could achieve.
- Square: One of the biggest companies in the Point of Sale (PoS) market for small businesses, this startup started with an idea for small business owners to make transactions for payment gateways like credit cards. The startup focused on making the best “micro PoS” system that any merchant with a phone can use, making a large scale business solution out of a small idea.
- Shopify: The e-commerce giant Shopify began as an accidental startup when the founders of an online snowboarding retail company couldn’t find a good payment solution to integrate on their website. They decided to make their own in-house platform for e-commerce. With the help of VCs giving them the fundraising needed, they were able to boost their success at a rapid pace.
There are thousands of other examples we could bring up here: the majority of tech giants we all know and use on a daily basis started years ago as small startups. And there are even more great startups who failed for different reasons: x, y, z and others.
On InnMind, we aim to support startups in their journey, especially when they need funding to fuel their product and business development. We connect them to the right VC investors and empower them with tools and knowledge that is needed to increase the probability of success.
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