In Short
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Startups are characterised by rapid growth, innovation, a young age, a dynamic culture and often a tech focus.
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Unlike small businesses, startups aim for scalability and disruption rather than stability.
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Building a startup requires careful consideration of legal structures, IP protection and compliance to support sustainable growth.
Tips for Businesses
If you are launching a startup, think beyond just growth. Establish a strong legal foundation from the outset. From company structure to protecting your intellectual property, legal planning is crucial. Foster a culture that values agility and innovation, but also be prepared to adapt as your business matures and scales.
Startups often bring to mind tech enthusiasts, sipping coffee from eco-friendly cups, co-working at standing desks in trendy loft-style offices. It is all part of the culture. But what exactly is a startup? Can we define it more precisely?
While it is difficult to draw hard boundaries, since revenue, profits, and headcount can vary widely across industries, there are some common features that distinguish startups from traditional small businesses. Below, we explore five defining traits that typically set startups apart.
1. Tremendous Growth
Startups are designed for rapid and scalable growth. This drive to scale quickly is one of the primary differences between a startup and a small business. As a result, startups often experience high burn rates and fast-paced hiring to support growth targets. Stability tends to take a back seat, and risk is heightened. In fact, once a business reaches consistent profitability and matures operationally, it may no longer fit the “startup” label.
Startups also have access to government investment schemes which may not be available for all types of small businesses.
The LegalVision Startup Manual provides guidance on a number of common challenges faced by startup founders including structuring, raising capital, building a team, dealing with customers and suppliers, and protecting intellectual property.
The guide includes 10 case studies featuring Australia’s top VC fund partners and leading Australian startups.
2. Innovation
At the heart of every startup is innovation and disruption. Startups typically pursue innovation in one or more of the following ways:
- Product Innovation: Creating brand-new products or services. Apple’s introduction of the iPhone, which revolutionised mobile technology, is a clear example.
- Process Innovation: Finding more efficient or effective ways to do things. Airbnb did not invent hospitality, but it transformed the booking process and customer and provider experience entirely.
- Business Model Innovation: Rethinking how value is created and delivered. Netflix’s transition from DVDs to streaming fundamentally changed the entertainment industry.
- Market Innovation: Identifying and serving new customer segments. Canva made graphic design tools accessible to everyday users, not just professionals.
3. Age
Startups are generally considered “young” companies. While there is no hard cutoff, many startups stop being seen as such after a certain time in operation, especially when certain milestones are reached, such as:
- acquisition by a larger company;
- establishment of multiple office locations;
- generating tens of millions in annual revenue; and
- employing more than 50-100 people.
4. Culture
We touched on culture earlier, and many founders believe it is the essence of what defines a startup.
However, as Matt Salzberg, co-founder of Blue Apron, noted, maintaining a dynamic, agile culture becomes harder as companies scale and mature.
5. Tech-Oriented
Startups don’t have to be tech businesses, but they often are. Technology tends to underpin many startups because it allows for speed, scalability and innovation at a relatively low cost. As access to technology grows, so does the potential for startups to disrupt traditional industries.
Key Takeaways
While there is no one-size-fits-all definition of a startup, these five traits are strong indicators of what differentiates a startup from a small business. If you are launching your own business, it is important to consider the kind of culture you want to build. Additionally, legal considerations are too important to overlook. From structuring your company to protecting intellectual property and navigating regulatory hurdles, getting the legal foundation right early on can save time, money, and stress down the line.
If you are launching a startup, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
No, not all startups are tech businesses. However, many startups leverage technology to scale quickly and innovate efficiently. While tech-driven approaches are common, the defining traits of startups are more about growth, innovation and a dynamic culture rather than the specific industry.
Startups face unique challenges, including protecting intellectual property, managing rapid growth and ensuring compliance. Establishing a solid legal foundation early helps avoid costly disputes and supports sustainable scaling. Working with a lawyer familiar with startup dynamics is key to mitigating risks effectively.
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