What is a startup (seriously)?

Can a junior oil exploration company be considered a startup? If you take some of the definitions floating around about what a startup is – yes.

A lot of small businesses have been clamouring to call themselves startups recently.

When questioned about their use of the term, they’ll usually offer the time-honoured Dennis Denuto defence.

‘it’s the vibe of the thing’

One of the more popular definitions people turn to when asking what a startup is and how it differs from a small business comes courtesy of Wikipedia:

“A startup company or startup or start-up is an entrepreneurial venture or a new business in the form of a company, a partnership or temporary organization designed to search for a repeatable and scalable business model.”

However, under this definition, a mining or oil exploration company could be loosely described as a startup.

If you take the Investopedia definition, again, there’s enough ambiguity for companies which are clearly not startups to give themselves the label.

It begs the question: how do you actually define a ‘startup’?

Common properties

Startup advisor and evangelist with Sydney-based incubator BlueChilli, Alan Jones, told The Pulse one of the common ways of identifying a company as a startup was simply by defining what isn’t a startup.

“It comes up a lot, and the hard thing to do is not devolve into some sort of Buddhist philosophy while doing so…but if you need to ask if it’s a startup, it’s probably not a startup,” he said.

Coming up with a cut and dry definition of what a startup is, even for those who work directly with startups, is a difficult task.

However, startups share some common properties.

Innovation

Jones said one thing startups had in common is that they used some kind of innovation at core of their business.

“There needs to be some sort of innovation [at the core],” said Jones, “while most focus on the technical side of innovation, it’s also equally as important to have the business model innovation alongside that.”

It’s a perspective backed by Colin Mcleod, who teaches innovation at Melbourne’s Wade Institute.

READ: Can you teach innovation?

“There needs to be something in the way they tackle the market which is different. It could be a different business model, it could be the application of an existing technology in a different way,” he told The Pulse.

He gave the example of Airbnb, while typically hailed as an innovative company, built its business on the back of technology which wasn’t.

“They cobbled together existing technologies to build their first platform, so there was very little technological innovation at all – it was all about the model they used,” said Mcleod.

So for a startup to be a startup, it needs to have some kind of innovation at the core of what it does – whether it’s in the market it’s addressing, its business model, or the technology it’s creating.

They also need to have ambition

Grand ambitions

Jones said a newsagent which had been operating for 25 years is a great success, but most startups would rather fail then enjoy that type of success.

“In a startup, it would be better to fail utterly in the first nine months than to create a business that still only has five employees and two million dollars in turnover in 25 years’ time,” he said.

“I think it’s about an ambition to scale.”

McLeod also said that startups aim to become high impact organisations

“They’ll create jobs, have significant economic impact, they could potentially have significant social impact and potentially have international customers,” he said.

“They have the potential to be significant organisations – in terms of revenue, employment opportunity, and international opportunity.”

Jones also added that their modus operandi is growth – which is why the likes of Uber and Airbnb can still be considered startups despite their gargantuan size.

“Quite often, [startups]…take all the revenue the business is creating and put it back into growth so they can continue to grow, “he said.

“That’s certainly what’s happening with Uber and Airbnb right now.”

So seriously, what’s a startup?

People, including MYOB, talk about startups a lot.

However, much like ‘discourse’, it’s a nightmare of a term to actually define.

It’s why the best we can do is define a set of common properties all startups share.

Startups:

  • Invest revenue in growth instead of dividends
  • Desire to become huge companies or make an impact in their field
  • Use some kind of innovation at their core

If a company doesn’t do the above, then it can’t be defined as a startup.

Do you have a different definition? Hit comment below and share your thoughts