What exactly is a startup?
Startup VS SME: learn the difference.
When we talk about entrepreneurship, there is a trend word that we can hear referring to almost every new business: startup.
When anyone tells that they are creating a startup, the project seems to be somehow more modern, innovative and technological than any other small enterprise. There is something fresh about the word, but most of the people do not actually know why.
So, what exactly is a startup? Is it not the same as any recently created enterprise? We will have a brief review of our recent history to understand this.
Where does the word “startup” come from?
The term was first used in the sense of a new company by a Forbes article of 1976:
“The … unfashionable business of investing in startups in the electronic data processing field.” — 1976 Forbes 15 Aug. 6/2
So, the term is not as new as it may look. However, thanks to the Internet and other technological advancements, the creation and investment in startups is something much more common nowadays. The Internet made it possible for many people to create its own business at a low cost. They could work on their projects and make them reach a huge public. Meritocracy for business.
Actually, the word startup became very popular during the ’90s and 2000s with the arrival of the dot com business. We can have an idea of this trending thanks to the Google Books Ngram service:
Today, many successful startups inspire the new generations of young professionals to earn their lives through entrepreneurship. Google, Amazon, and many others are now business references that started with small projects.
What does “startup” mean?
According to eh Oxford English Dictionary, that can be accessed online, a startup (or start-up) is just a newly established business.
We cannot say that is not true, but nowadays the term startup includes other implications. We can list some essential characteristics of a startup that make it something different than any other traditional business, being it recently established or not. However, these characteristics are something difficult to define and thus it is possible that they change along time.
- Startups are indeed recently created companies. We cannot say Facebook or Spotify are startups nowadays, even when they could be one on their origins.
- Startups are small companies with a highly scalable business model. As opposed to most small and medium-sized enterprises (SME), their long-term plans do not end on the establishment of the business. Startups focus on the continuous growth and expansion of their influence.
- Startups innovate. They compete in their markets by adding new value through their products, their processes, or their business models. A startup is not necessarily the first company applying these innovations, but they can adapt to what other companies start to do. There are always many risks, but also potentially strong profits.
- Startups have lower costs, compared to other companies in their sector. Even when they work to become big companies, their small size makes their internal processes simple and fast. They only add to their activity the key parts of the value chain and look for the essential partners to boost their growth.
Most readers may be thinking: and what about technology? Is it not one of the most important characteristics of the startups? Not all the experts say the same, but I agree with many on that technology itself is not really necessary for a new company to be called startup.
However, if one reads the four points listed above, it is clear that new technologies are the main enabler for all those characteristics. It is not easy to find a startup that does not make use of technology in any of the key parts of their business. Technology facilitates scalability. Startups usually offer technological products of technology-based services, or they reach their customers through technological platforms like app markets.
It is not that startups allowed the development of the technology, but the technology in the first place enabled the creation of the startups. Today, they live in a symbiotic relationship that makes the entrepreneurship ecosystem to grow at the same time as technology evolves.
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