In an age when companies like Facebook, Groupon, and Twitter have morphed from innovative young startups to faceless corporate conglomerates, the ubiquitous startup phenomenon continues to thrive.
Guests on the reality TV show Shark Tank represent just a sample of the many unique startup entrepreneurs skittering across countless industries looking to get funded. If they’re lucky, they have a whole new set of problems: How do they move forward? How do they become more than just another piece of startup wreckage littering the left lane of the business superhighway?
What is a startup company?
First, let’s get one thing straight: Not all new and/or small businesses are considered startup companies. For example, owners of mom and pop restaurants and hardware stores aren’t looking to create multi-million dollar corporate behemoths – they’re looking to contribute to the well-being of those in their communities. Although a startup company may also consist of a small group of individuals, its characteristics differ from those of a small business. These are just a few ways in which a startup company differs from a small business:
- Lack of company history. With little to no background, a startup company is just that – a new beginning. It takes time to develop a history, and startup companies typically grow out of the startup phase by the time they’ve achieved a well-developed history.
- Dependent on private equity. A startup company often approaches private equity firms or, like on Shark Tank, experienced entrepreneurs offer to provide knowledge and insight in exchange for equity in the new company. Many startups begin without an initial revenue model, making them dependent on private equity as they work to find an ideal business model and enter the painful early growth stages.
- Potential for high and rapid growth. Quite possibly the core characteristic of a startup company, and the one that most signifies its risk-worthiness, is a company’s potential for growth. Tech companies (or ideas) are most often tagged with the moniker of “startup” because most often they have the largest capacity for rapid growth. Successful startups can push past this designation by pushing their unique innovation into the technological mainstream.
When is a startup company no longer considered a startup company?
Startup companies typically remain in the startup phase for around three to six years, depending on their growth in size and profit. The statistics for rapid growth vary from industry to industry, so it’s difficult to set a specific universal standard for startup company success. However, these are a few milestones that, when achieved, may indicate your startup has advanced to the next level:
- Over 80 current employees
- More than one office location
- Highly profitable (multi-million dollar business)
- Merging with or being acquired by another company
Once a startup owner develops a workflow and business model, developing and implementing a strategy for scaling the business and dramatically increasing its profitability, it exits the startup phase and enters into maturity.
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