What is a Startup?

Unless you took a complete digital detox and deactivated all social media or social interactions, it is almost certain that you might have heard the words like ‘Startup’ and ‘Unicorn’ buzzing around quite a lot in your feed all-round the year in 2021.

Fascinatingly, we live in a time when big companies like Zomato, Paytm, & Netflix who have successfully had their shares listed in an IPO are still considered as ‘Startups.’ But, before we dive into the bells and whistles of the fairyland of IPOs and unicorns, let’s first understand what does a startup actually mean.

What does a Startup mean?

A startup is a relatively young company incorporated by a person who has a unique idea to develop a product or offer a service that is claimed to be better than anything else available in the market and which improves the life of the customer at a certain scale. The person who finds such a unique idea is called ‘Founder.’

A company is generally classified in the category of either ‘Disruptor’ or ‘Disrupted’. Startups are often rooted in innovation and fit into the category of ‘disruptors’ because the very intent of creating a valuable startup is to fill an existing gap in the market or offer an entirely new category of products or services.

"A startup is an organized form to search for a repeatable and scalable business model" - Steve Blank

Startup vs Small Business

Although the words ‘startup’ and ‘small business’ are now used more interchangeably than ever, there are subtle differences important enough to differentiate between the two terms. Every business is created for purpose of generating profits for its owners and investors.

A startup is created with the intent of hyper-growth and scale from its very inception. The purpose of a startup is to be the leader in its space. Example: Starting a cloud-based delivery.

On the other hand, a small business is a set of operations performed for generating profits but is not expected to dominate the markets or change current product or service offerings in the market by a significant margin. Example: Opening a grocery store.

Small businesses have lesser risk as their model is tried and tested by a variety of existing players in the market and hence, they can meet their capital requirements through traditional bank loans, lines of credit, and other asset-based financing options.

As for the Startups, the traditional sources of funding cannot be availed as the risk factor increases significantly due to unknown markets and uncertain demand in the initial stages. Hence, sources like private investments from people (angel investors) or groups of people (venture capital firms) willing to take risks emerged to fund the growth of the startups and earn extraordinary returns for their risk.

To conclude, the above pointers can be used to understand of what a startup is and whether you should classify your business as a startup or a small business.


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