What is, and what isn’t, a Tech Startup
During the time, I have been part in some debates about the right term to use when pitching your company. Lifestyle entrepreneurship, tech startup, scale-up, IT&C company, or just a regular business… You can easily be lost in translation.
Been there, got a t-shirt. So here are my thoughts about different stages and/or positioning from my 20 years tech career perspective.
Back in nineties, being in university, I ran a (kind of) computer company. Maybe is too much to name it assembly line, but actually we built computers from parts. We started in the kitchen (sorry, no garage) and then we grew quite fast for those days, especially in a former communist country.
Company type: micro-business. This wasn’t a tech company, maybe neither a real business. We worked exclusively on cash, small capital but huge capital turnover, buying parts for 20–30 computers today, advertising in a local newsletter a “special offer” configuration and selling the stock in few weeks.
Business model: Buy, build, sell, repeat.
Entrepreneurship level: newbie / money for going out.
After 2–3 years of growing (and going out), we got two more partners, the working capital increased to 10x and we hired some friends. We started to resale parts to smaller companies, we got connections. The first money from services begun to flow in and we got some real orders from real companies. And we started to face cash-flow problems, the real world came in our lives.
Company type: (small) computer hardware company. I wouldn’t position it as a tech company yet, as long the internal technical expertise and services were still low.
Business model: Retail and distribution in IT&C.
Entrepreneurship level: junior entrepreneur.
Facing competition from big companies that started to emerge and/or establish in Romania and because of our lack of experience (or inability to adapt), we went bankrupt very soon. But, to be honest, it was the most joyful experience as entrepreneur.
Company type: no company.
Entrepreneurship level: first-time failed
In the late nineties, I started a dial-up Internet Service Provider. We bought a super big server (literally), 24 modems and begun to configure everything from scratch (with no idea about what we are doing). We had the server up&running in 3 months and the first users started to ring the landline trunk. In another 3–4 months we were breake-even. In about one year, we doubled our customer base and invested everything in scaling up the infrastructure.
Company type: (fast-growing) internet company. At that time, the term startup didn’t exist. But even if it would exist, our ISP wouldn’t qulify. Why? Because our business model couldn’t meet the long-term replication and exponential growing metrics required by a startup, as we understand it today.
Business model: internet services
Entrepreneurship level: low-skilled tech entrepreneur
In less than two years we got a successful business. And we lost it in less than two months. We weren’t smart (and financed) enough to move to cable broadband and we have been killed by ADSL.
But we were skilled enough to pivot the business to web services. 1999–2000, the golden ages of web with no UX and lot of Flash stupid animations. And yes, the Bubble…
We got some local gigs, we learnt Actionscript and started to sell our (cheap) services to US companies. A new endeavour begun.
In two years we grew the team and started to work for companies like Lucent and Motorola. And we moved slightly from the shitty flash websites to interactive product demos and web-based learning systems.
Company type: web development company.
Business model: outsourcing
Entrepreneurship level: new media entrepreneur
But outsourcing is not a sustainable model. We pitched to the biggest mobile telco company in Romania and we won the contract for developing their enterprise Intranet Management System. We built a real software development team and a reliable end-to-end enterprise product. But we have been too busy and maybe too comfortable in this partnership and we made a huge mistake: to rely on one single client. When Vodafone acquired Connex, they came in with their systems and kicked us out.
Company type: software development company.
Business model: product and services
Entrepreneurship level: software entrepreneur
In 2015 I started my next tech venture — Woogie, an AI/voice based educational robot for children. More details about Woogie’s journey here.
We started Woogie as a global product for a global market from early beginning — Total Addressable Market = $1.2 billion per year.
Company type: tech startup (hardware)
Business model: hardware enabled services
So, finally, what is a startup?
I mostly agree with the Paul Graham’s definition:
A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth.
Startups are different from traditional businesses primarily because their only reason to exist is to grow fast. Simply said, they should have something they can sell to a very large market. Yes, a very large market.
As a Romanian entrepreneur, I would add that a startup must have global (or at least, regional) ambitions. You can’t rely on a local market (even if it’s a small country) to scale as fast as is required. Not even talking about local particularities, language bariers, etc. Once you got the PMF (Product Market-Fit), the scaling should be fast and frictionless, without big investments into development. Is not working if you have to build another product or find a new PMF for every new territory.
If a company can’t replicate its initial growing model into new markets very fast, it is not a tech startup. Call it whatever you want, a tech business or a software company, or an app. But stop list it as a startup, because it hasn’t the required potential for fast growing.
To conclude, startup world is super-sexy and it works for your self esteem. Also politicians are using it because is a buzzword and sounds good in their speeches. Journalists love it too. But, business-wise, is nothing wrong with a very profitable lifestyle business or a sustainable software company. And, meanwhile, you’ll avoid the emotional rollercoaster that a startup actually is.
Bogdan is a lifetime tech entrepreneur. Co-founder of Woogie and innovation consultant.