What is a start-up, and why it does matter
From a willingness to change the status quo to dreams of making billions, entrepreneurship is exploding, and heaps of start-ups are created every day.
Strangely, there is no general agreement on what is a start-up; it does not help that some of the largest publicly traded company on earth — Facebook, Google — still consider themselves as start-ups.
Yet, a start-up is a very well defined type of company. One that evolves inside a limited space in terms of business type, development strategy, growth speed, and often technology.
“A startup is a young company which is just beginning to develop”
— Amy Fontinelle, Investopedia
“A startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed”
— Neil Blumenthal, co-CEO of Warby Parker
“A startup is a company designed to grow fast”
— Paul Graham, co-founder of Y Combinator
A start-up is first and foremost a statement against standstill conservatism. It aims to be disruptive. Going counterflow often requires considerable resources. Collectively, the Silicon Valley devised a very powerful strategy to kick-start such venture, and I argue that the current definition of a start-up rest on this strategy.
- It is not self-funded
To be disruptive, a start-up needs to be faster than the powers that be: large established companies. Should they identify a new opportunity, these companies can mobilise hundreds of workers; however, corporate inertia prevents this to happen overnight, and start-ups somehow count on it.
Unless sitting on a large pile of cash, it is however difficult for start-up founders to tackle the (many) unforeseen issues to reach the market on their own. Cash is needed if only to recruit a bare bones team and develop partnerships with suppliers and distributors. And it is needed fast, so that competitors don’t have the time to adjust to the innovation.
To my knowledge, this requires some form of funding, the quickest being private — Business Angels at early stage, Venture Capitalists later. In some cases public R&D funding can be helpful, but it is often too slow to arrive.
- It is focussed
As long as an innovative idea is at the “problem” stage, it is not actionable. For an idea to become a start-up, the focus has to be on offering a very specific solution to the “problem”. Thus, a start-up aims to develop a new idea into a new product for a given market. Once all three defined, the possibilities to go astray are drastically reduced. They are not to be changed lightly — in fact, any change constitute a pivot.
A start-up is thus a hyper-specialised venture, whose focus confers simplicity and visibility, both necessary to convince investors and new recruits that it’s worth getting on board. Generally, it does not care (initially) about internal quality or processes, this will come later.
- It is a work in progress
The goal has to be clear, but not the way. Innovation and R&D always reserve surprises, as well as customers needs. Start-ups will often cut corners to offer their product in the given time-frame, even if it means for instance to temporarily use Amazon Mechanical Turk instead of a Machine-learning based image recognition algorithm.
Generally, a start-up will release its product at a very early stage, much earlier in the product life-cycle than an established company. The commercialisation of such a product will be accompanied with a very reactive customer service and regular updates to correct the issues as soon as they arise. In fact, the first commercial version is generally more of a beta testing.
Why does it matter?
The start-up concept goes hand in hand with those of innovation and disruption. Nowadays when someone has a good idea, before anything else she is advised to create a start-up — the terminology has substituted company or venture, which either seem too corporate or too dated.
And yet, there is a reason why among all possibilities Information and Communication Technology start-ups are the most common: not all ideas readily convert into a start-up. Industry-heavy ones demand for high capital investment ; R&D-heavy ones are too slow to deliver to markets and/or too risky ; and social innovations often have a low market value from an investor perspective. Forcing an idea in the start-up mould can sometimes be like forcing an oval into a square: it just doesn’t want to fit.
Entrepreneurship comes in all forms and shapes. In my three years of innovation consulting, I’ve worked with enough new ventures to see that most of them do not fit into the start-up model. The reasons are multiple: not built for scale, too slow, not focussed enough. Nonetheless, all of them are innovative companies and recognised as such by public funding agencies.
Entrepreneurs also come in all forms and shapes. There is no clear persona, only a willingness to change and to build something new. We should celebrate them all, and not only those who are willing to build a start-up.