Entrepreneurship vs Startups vs SME's vs Scaleups
Few things are as important as common understanding and definitions. Without knowing exactly what specific terms mean and how they apply to given situations, little discourse startup or ecosystem development can occur. In developing startups and startup ecosystems, there are still many terms that are misunderstood or misused.
As the term startup is not an officially defined term anywhere in the world, there are several things to take into account when choosing a definition for a specific use case in an organization, city ecosystem etc., to keep it logically aligned in other commonly appearing definitions and by comparing it with use of other often associated terms, for reasonable and logical separation also for those trying to understand the use and meaning of the term when looking from outside in.
An entrepreneur is an individual; the startup is an entrepreneurial team. However, often, the media likes to highlight individual entrepreneurs over teams. Also, many team members may prefer not to be so visible; even the business needs to face and benefit from media visibility. It also starts to be commonly understood that a startup is not a smaller version of a big company, but an "organization formed to search for a repeatable and scalable business model", so being in the process of creation and growth, where growth is not only measured simply by standard business terms like revenue or profit until possible or feasible but also by market share, number of active users etc. even with a free product or service.
For these reasons, startups can also not be categorized simply by the company's size, ie. SME, Mid Cap or Large corporation, by their resources, i.e. number of people, profits, assets etc., or the company's age. Startups are commonly considered to be anything from few co-founding people and an idea, in some cases even without having registered a company yet, - to several years old company with tens or even hundreds of people, regardless of making or not any profits or revenue yet for several years, while focusing on building the value and scaling the opportunity of the company in other ways (market position, assets, reach, scale, recognition, brand, etc.). That said, sometimes startups also prefer not to call themselves startups when it suits their needs, like in some cases when they want to appear more stable or mature, i.e. in the eyes of a significant customer.
To mix things, there is another related and relatively new term that has started to emerge in recent years: "scaleup". While this can be logically described to be a company at scaling phase, there is an aspect to consider, that it's not limited to a startup company that has reached the scaling stage, but can also be used for an older company that has found a new scaling mode as a result of new product/service and new owners with new growth ambitions and business model.
At the same time, due to the fast development of technology, the internet, software, open-source concepts, API's, app stores and other platforms, crowdfunding, ICO, etc. startups are no longer as dependent on requiring risk capital in the form of venture capital, business angel funding, equity crowdfunding etc. to make a "funding round" or even to make an "exit", as something that is required for building a successful startup. So while a successful funding round can be one type of positive indicator and other validation signals, it should not be mixed as a requirement or measure of real success, but just as a single milestone.
Choosing the external investor route is an optional strategy choice, among others. That said, it makes sense to build the business also to be investable, to have that option available in case that strategy would turn out to be the right one to choose at some point. Like anything an investor would look for in a startup is also suitable for business in general.
The topic about "investors" and "search for investments" are disproportionately overrepresented in startup ecosystem support targets compared to all other things that are critical factors for startup success.
Startups are "optimal" vehicles to validate and bring innovations to the markets. Incredibly more disruptive innovations. Startups encapsulate all relevant things for what's needed to build new creations with a minimum "wasted resources" combined with maximum drive & motivation.
Startups create most new jobs, attract international talent and foreign direct investments. "Over the last twenty-five years, almost all of the private sector jobs have been created by businesses less than five years old. Between 1988 and 2011, companies more than five years old destroyed more jobs than they created in all but eight of those years." - Source: a study by Kauffman Foundation and the Institute for Competitiveness & Prosperity.
History of the startup terminology
Regardless of innovation and entrepreneur being older terminology and yet often mixed or misunderstood with terms like inventions and small business owners, those are still already much-established terms than "a startup". This term originated from the US. in the late '70s and became popular in the late 1990s as part of the technology and internet hype and bubble that eventually burst around 2000.
Startup (i.e. startup company sometimes also known as upstart) term emerged to describe and identify a new or early-stage company with higher than usual growth potential due to technology it was developing. This meant that for that growth potential to be possible, it was relaying to new technology and since the 90's also to the internet as the high growth enabling factor. These startups were known as internet startups or, more broadly, technology startups, and as such, the term "startup" is still mainly referred to as "technology startup".
The term was needed and, as such, created by the venture capital industry, that used the term to separate these specific types of new growth potential companies from traditional entrepreneurship, generally, new companies and small businesses, where the main factor for this separation was the "scalable, fast-growth potential", at the time mainly associated or enabled by technology and in the late '90s by the spread of the internet. Due to where the term originated, the term is also the reason why the time is still so strongly tied with investors and risk funding and technology mindset.
Once there was this new definition for a "category of new businesses" created, like with any such definition, many other aspects started to be considered and validated over time by VC's about "what makes a good startup", where one crucial factor was the founding team and the structure of the founding team, specifically from the attitude and skills perspective. This meant that in addition to the business idea and growth potential with technology as an enabler, a key separator for identifying potential investable startups, a founding team setup with complementary skills has become considered one of the (if not "the one") key instability factors.
"Ideas are cheap, and execution is everything. It's all about the people,' I only invest when I think I have found the right team for the right business." – Chris Sacca.
Over few decades, many of these startup requirements by startup investors have been further "iterating" via validated success and failures of various types of startups, mainly captured as personally experienced by investors and serial entrepreneurs. As well as further iterated by the development, growth and maturity of the "startup" as a model and ecosystems around it by other actors like business angels, incubators and accelerators, and new startup oriented tools and methodologies, such as business model canvas and lean startup.
These factors combined with growing interest towards startups and "startup model", together with wast knowledge sharing and social media tools and channels, have made the collective learning and iterative refining process of "what makes a good or potential startup" and ongoing and further accelerating the process.
While this defining progress is globally spreading, ongoing, and there are many views and opinions about what is "a startup", there are, however, enough collective and mutual "consensus" to define what a Startup is and what it is not to make the term useful. Compared to much older related definitions of "innovation" and "entrepreneur", the startup is starting to be equally well understood for the term's meaning as the other two.
Also, while the technology still plays a significant role in startups, as digital technology itself have become more affordable, available and commonplace in general, - the technology itself is not the critical factor anymore in most cases, but what is done with things that technology have already enabled. As such, it's logical that startups are being referred more commonly just "startups" to help make separation to non-growth oriented new SME companies, as high impact startups or innovative startups, especially in the areas or among people, where startup as a term is still less familiar or relatively new in context.
6 Types of Startups
- Scalable startups
- Small business startups
- Lifestyle startups
- Buyable startups
- Big business startups
- Social startups
In our modern world, where everyone strives to bring innovation, a good idea isn’t enough to create a startup. To understand the features of different startups better, you need to review the following six types.
- Scalable startups. Companies in a tech niche often belong to this group. Since technology companies have great potential, they can easily access the global market. Tech businesses can receive financial support from investors and grow into international companies. The examples include Google, Uber, Facebook, and Twitter. These startups hire the best workers and search for investors to boost the development of their ideas and scale.
- Small business startups. These businesses are created by regular people and are self-funded. They grow at their own pace and usually have a good site but don’t have an app. Grocery stores, hairdressers, bakers, travel agents are the perfect examples.
- Lifestyle startups. People who have hobbies and who are eager to work on their passion can create a lifestyle startup. They can make a living by doing what they love. We now can see a lot of examples of lifestyle startups. Let’s take dancers, for example. They actively open online dance schools to teach children and adults to dance and thus earn money.
- Buyable startups. In the technology and software industry, some people design a startup from scratch to sell it later to a bigger company in the industry. Giants like Amazon and Uber buy small startups to develop them over time and receive benefits.
- Big business startups. Large companies have a finite lifespan since customers’ preferences, technologies, and competitors change over time. That’s why businesses should be ready to adapt to new conditions. As a result, they design innovative products that can satisfy the needs of modern customers.
- Social startups. These startups exist despite the general belief that the main aim of all startups is money. There are still companies designed to do good for other people, they are called social startups. The examples include charities and non-profit organizations that exist due to donations. For example, Code.org, a non-profit organization that encourages school students in the US to learn computer science.
In case you consider creating your startup, we’ve prepared five startup business ideas that will inspire you to develop something unique.