Startups evoke images of young tech-savvy individuals wearing hoodies, drinking coffee from eco-friendly cups and co-working at standing desks in a cool loft conversion. It’s all about company culture. But just what is a start-up? Can we define a startup more accurately?
Although difficult to do so because revenues, profits and employee numbers largely differ among companies and industries, there are some common traits which differentiate them from a small business. Below, we set out what five features help to identify a startup.
1. Tremendous Growth
Startups are businesses designed to scale incredibly quickly, and this focus on growth and rapid scale differentiates them from small businesses. Consequently, startups usually have high burn rates and typically hire employees to facilitate this growth. There is a distinct lack of stability. Interestingly, companies that begin to generate profit may no longer be classified as a startup.
Malcolm Turnbull late last year thrust innovation and disruption into the vocabulary of ordinary Australians. Unsurprisingly, startups are then involved with innovation, new ideas and using technology to create something that addresses a problem. They are typically disrupting existing markets – hotels (Airbnb), taxis (Uber), search engines (Google) and even legal (LegalVision – that’s us!).
Startups are generally young and after three years in business, most cease operating as startups. This coincides with other events including:
- The company is acquired by a larger company;
- The company sets up multiple offices;
- The company reaches revenues of over $20 million;
- The company has over 80 employees;
- The company has over five directors; and
- The founders personally sell some of their shares.
Importantly there are still no set rules and a company which is five years old can still be a startup.
We’ve already mentioned culture and many founders insist that startups are a culture, undelineated by metrics. As such, they argue that a company can be a startup at all ages and sizes.
Russell D’Souza, co-founder of ticket search engine SeatGeek, said “[a company] stops being a startup when people don’t feel as though what they are doing has an impact. I don’t think the tipping point is a certain number of people, but an atmosphere that people individually and collectively can’t will the company to success.”
But Matt Salzberg, CEO and co-founder of dinner set delivery service Blue Apron, identified the challenge explaining that remaining a dynamic culture gets harder with every new employee, and every passing year.
A startup does not, by definition, have to be tech-oriented although in reality they often are. Startups often use technology to solve problems and the ever-growing public access to that technology enables a startup’s tremendous growth.
There isn’t a stringent definition of what constitutes a startup, but there are some common features that help us to identify whether a company is a startup or not. If you have any questions about starting up your startup, ask our startup lawyers on 1300 544 755.
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