Business Basics: What is a ‘Startup?’

When you hear the word “startup,” what sort of company do you think of? A small company? A new company? A high-tech company? In fact, in modern business English, a startup doesn’t have to be any of those things. It doesn’t even need to be a whole company.

What is a startup?

Let’s start with a definition. A startup is an organization that is looking for a new business model that can lead to fast growth. One key part of the definition is “looking for.” Startups are trying to find a new, innovative way of doing business — something that has never been done before. It might work or it might not. Nobody knows, but that’s the whole point of a startup: to try something new. Startups want to find out what works and what doesn’t, under conditions of extreme uncertainty.

Lots of new businesses aren’t startups. Most stores, restaurants, factories, transport companies, law firms, advertising agencies, etc., are simply copying an existing business model. That doesn’t mean it’s easy to be successful. But at least we know that it’s possible to succeed with those business models. But with a startup, there’s nobody to copy, no rules to follow. Extreme uncertainty means you’re in the dark, making up the rules as you go along.

How do startups grow?

The second key part of the definition is that startups are trying to grow very fast. In order to do that, the business model needs to be repeatable. You need to be able to repeat the same actions again and again and keep making money from them. I might make a lot of money by buying a cheap factory and selling it for a profit, but it’s not a startup if I can’t repeat process that again and again.

But repeatability isn’t enough. Your business model also needs to be scalable. In other words, your business can get a lot bigger without spending a lot more money. My restaurant business isn’t very scalable — if I want to open ten new restaurants, I need to spend a similar amount of money on each restaurant. But your e-commerce business might grow from a hundred customers to a hundred million customers while your costs only double. That’s a highly scalable business model.

Is Google a startup? Is Facebook a startup? Is Apple a startup?

Companies like Google, Facebook, and Apple began life as startups, but they aren’t really startups now. They already have strong business models. They already know how to make money. But at the same time, these companies still act like startups. They are always looking for new things to do. They experiment to find out what works.

A startup doesn’t need to be a whole company. It can be a smaller business inside a larger company. So Google’s driverless car business is definitely a startup, while its search engine business probably isn’t a startup any more.

What’s the difference between a startup and a start-up?

Some people use the older spelling, start-up, to describe a business that is simply starting up. But with the modern business meaning of startup (i.e. an organization that is looking for a repeatable, scalable business model in order to grow fast under conditions of extreme uncertainty), the more modern spelling, startup, is becoming more popular. So if I open a new restaurant, it might be a start-up, but it probably isn’t a startup.

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