Meaning & characteristics of a Startup
Are you still confused about whether you are playing with a startup or a next-door business idea? If yes, believe me; you have landed just at the right place!
I find many entrepreneurs still struggling to know if the business they are doing is a startup. Though some are inquisitive only about its meaning, many of them wish to take advantage of the funds and schemes or are just passionate about it.
What is a Start-Up?
Many startup promotion programs launched by the government and private companies have given their own definition of startups. Let’s look at those definitions first.
According to Startup India Program launched by government of India,
“It should work towards development or improvement of a product, process or service and/or have a scalable business model with high potential for the creation of wealth & employment”.
According to Hubspot,
“It’s a new business that’s formed to solve a problem for a target audience. The term startup refers to an entrepreneurial venture that’s designed to scale quickly and is funded by bootstrapping, venture capital, or other means.”
Eric Ries, an American entrepreneur and the creator of lean startup methodology, provides the following definition of a startup,
“It’s a human institution designed to create a new product or service under conditions of extreme uncertainty.”
From all the above definitions, you can deduce the following interesting 7 characteristics of a startup:
Solves an unsolved problem or satisfies an unmet need
A business that strives to capture only a small percentage of market share by offering solutions (products or services) that already exist i.e. which are not unique, cannot be called a startup.
It always focuses on the market that is largely untapped or missed by traditional businesses. It’s designed to identify a gap or an unmet need in the market.
They have a high potential to scale quickly with their scalable business models.
Their growth follows a ‘hockey stick’ curve especially for those that focus on entirely new markets. As can be seen from the image below, sometimes, the bottom portion of the curve can remain flat for a long period of time ranging from few months to few years, until the growth shoots up.
For them, the growth is not only limited by revenue and profit but is also measured by the market share, the total number of active users, etc. even when the offered product or service is free during the early phase of starting up.
Startups are known for disruptive innovation meaning that they create and deliver value to their target customer segment that has not been offered before. This ‘not delivered before’ value can be in the form of:
- New product or service
- Targeting new markets with existing products or services
- Innovative business models creating value for customers and capturing value for the business
- New channels for offering the existing products or services i.e. delivery through drones, online platforms, etc.
Taps Big Opportunity
Startups look to solve problems that provide a big opportunity and create an impact at scale. The bigger the opportunity, the better are the chances for it to grow and scale fast. This differentiates startups from SMBs (small & medium scale businesses) that usually look to tap into an average-sized opportunity and therefore their growth is limited.
Plays in Uncertain Environment
Since the product/service or business model of the startup is not yet proven to be viable and there are many assumptions in the value proposition, customer segment, etc. which they need to validate, their survival is uncertain.
Aims for product-market fit
A startup does not have a product-market fit in the beginning. The founders are in search of achieving the fit by first undergoing & passing the minimum viability test of their offering and then trying to achieve the fit through continuous feedback and learning from the potential customers and building over it for the larger part of the customer segment.
Has a small team size
Though the team size cannot be described in strict frames, but usually it is less than 10 during the early stages of starting up. The startup grows its team size depending on its growth, increasing complexity of operations, etc. The team size can even reach 100 in some cases.
Depending on the market they operate in, they can be classified into 3 broad categories as shown in the table below. The insights from the following table will make the picture of a startup clearer.
To Wrap Up
Using the above 7 characteristics, it would become easy for you to decide whether or not you are actually working as a startup.
Do you feel there is something more to be included? Kindly write to us. We will be more than happy to consider your valuable suggestions.