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What is a startup? (swombat.com)
51 points by jot on Dec 17, 2011 | hide | past | web | favorite | 23 comments

Eric Ries has a good definition in the Lean Startup:

"A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty."

Is every new company a startup? No, lots follow templates within fairly known parameters, such as Restaurants. The uncertainty isn't there to the same degree, and the offering is known. They are a new company, but not a startup company.

Is every old company not a startup? No, many have to deal with the innovators dilemma and as their main business face competitions are forced to confront uncertainty and create divisions to reinvent themselves, these divisions would be considered a startup.

Eric defines a startup by the uncertainty factor, and by the creation of a new offering from that uncertainty.

Edit: typo corrected

Typo: I think you meant to type UNcertainty. The quote from the “Lean Startup” book is:

“… a human institution designed to create new products and services under conditions of extreme uncertainty.”

Assuming most readers know what you meant, but just had to correct it, for the record.

I like Eric Ries' definition. To me it implies the startup is trying to figure out some hard stuff and that if they nail it it could be HUGE! A non-startup reminds me of any ol' business that is just making money and is boring on a day to day basis.

No worries, thanks for pointing it out. I had to edit it from my mobile in a Manic Street Preachers gig before the edit window closed on me.

Kindle should really allow cut and paste, a fair use amount (let that debate begin!). Then I wouldn't have got it wrong.

From PG's "Want to start a startup?"

"... a startup is a new business designed for scale ..."

more in context:

"... The first component is particularly helpful in the first stage of a startup's life, when you go from merely having an interest in starting a company to actually doing it. It's quite a leap to start a startup. It's an unusual thing to do. But in Silicon Valley it seems normal. [3] ...

[3] Starting a company is common, but starting a startup is rare. I've talked about the distinction between the two elsewhere, but essentially a startup is a new business designed for scale. Most new businesses are service businesses and except in rare cases those don't scale.


The actual article: http://www.paulgraham.com/hubs.html

My definition: A startup is a 1-5 year old company that has a potential to grow up its enterprise value by 50X within the next 5 years and has a business that can scale up quite easily.

This would filter out all the usual suspects Facebook, Twitter, 37 signals, while keeping Path, Instagram and all the YC funded companies. It would also cut out the new neighborhood bookstore, most service businesses and that sweet home business. Also it would cut out companies that have already reached $1-2bn in valuation (as they cannot realistically grow to become $100bn companies in 5 years).

I was planning on commenting along the same lines but you've nailed it.

I get sick of these 10 year old successful companies constantly referring to themselves as startups. That's similar to a thirty year old calling himself a teenager.

Let me start-off by saying that my notes on this are basically thought-up on a whim and should probably be considered as light remarks. My knowledge on what is and what isn't a startup is limited.

Notes on your definition:

You could exclude apple as an outlier by changing "in the next few years" to "in the first few years".

Concerning the significance of growing by a large factor; you might want to consider changing the absolute number to a recurring value. 500 users in the first year which turn into 5000 after five years is hardly significant. 500*5^5 = 1.562.500 is starting to feel significant. The actual growth factor per year might need to be altered.

"repeatedly grow by a large factor (5x or more)"

Ambitions and plans could be refactored to "aims"; if you're aiming to do something you probably have the ambition and you sure as hell need to have some plans or your ambitions won't go anywhere. Although it might be better to explicitly mention ambitions and plans.

In conclusion, my refactored definition would be

"A startup is a business which aims to repeatedly grow by a large factor (5x or more) in the first few (1-5) years.

My personal definition of a startup is a company that is not yet a business. Which then brings up the definition of business. To me a business is a company that produces a stable profit, maybe 6-12 months profit.

Personally i think calling very well established businesses like 37signals a startup is quite insulting, as to me, its saying they're not successful, which they clearly are.

The key differentiator addressed by both Steve Blank and Eric Ries in their definitions, is that a startup is innovating. A company taking an existing, proven business model and attempting to build a business based on it (whether in the tech space or elsewhere), does not qualify as a startup, even if it is aiming for hyper growth.

I actually don't think I've heard "startup" used outside of the tech sector. A new oil company is basically a startup (they take VC, have few employees, and are trying to grow dramatically), but they're never called that.

Scaling is the key here. Startups are able to scale, whether at 5x, 10x, or 20x really doesn't matter. The point is that they can scale much faster than other types of businesses. This usually involves technology and automation, but not necessarily.

I like PG's "make something people want" It describes a successful startup. So successful startups make something that people want that they can scale tremendously. As swombat points out, big companies just can't keep making the magic happen, so by my definition they stop being a startup.

People dont know what they want. You can create markets.

The intention here is not that a person has some specific idea of what they want and then you make it, that's thinking of the test backwards. The intention is that when presented with something you have created, a person will want it. So yes, you can create markets. Or you can chase markets. It works either way, because it's the meeting of product with potential consumer that matters. Along those same lines, you might invent a cure for cancer, but if nobody sees it, you really haven't done much.

I think of a startup as a hypothesis, much like you'd find in science. Take problem X, apply Y solution, and make money by doing Z. The process of failing fast and often is akin to performing different experiments on what works and what doesn't. The major difference is that science is science and the results are clear cut and objective; with a startup, your results will depend on the quality of your team, the original idea, ability to get funding, market timing, etc.

I've always felt that a "startup" was any business which was not yet profitable or had not yet reached a certain 'scale' appropriate for their industry and ambitions.

Here's my post from 2008 where I ask my readers to help me define what a startup is - I also list some companies wondering if they are startups: http://www.centernetworks.com/startup-definition

If we go with the TC definition, Facebook is still a startup :)

What I really want to know is what is the difference between "startup" and "small business"?

This is easily applied to software but not necessarily services, which cannot scale the same way. Unless you mean to say that no services company could ever count as a startup.

I think it has more to do with the current state of a company - that is, immature: still figuring out internal roles, processes, possibly no finalized monetization strategy, etc.

I'm not sure this part works: "to grow by a large factor (10x or more)".

Most businesses I come across that describe themselves as startups and fit the rest of the definition, haven't yet got themselves to a point where a 10x improvement over the next year would make them that significant.

I'm specifically thinking of participants in accelerator programes like YC, TechStars, Start-Up Chile and SeedCamp.

a word

I really like your definition and after reading this, I can't help but think I might have been that person who argued about your definition. If I am, I am very flattered that something I said got you thinking along those lines.

However I'd argue with you about Apple. Like you said, Apple didn't hit the time-frame requirement. Wouldn't you also agree that a true startup needs to have the requirements you listed but at the same time start from zero. Companies that just start out, have the growth you talk about in the time frame you talk about would definitely be startups. Companies that have been around for a while and suddenly have explosive growth and hit the other requirements only resemble startups. Google, Apple, and Facebook feel like startups but have certainly grown out of that phase. Being a startup in my opinion a one-time phase that you cannot go through again once you're established no matter how explosive your growth is.

In any case I like your definition and I think it's important that we have one. The word startup is easily overused in an attempt to attain that cool factor some companies have and to ride a trend instead of getting by on the companies real merits.

You were one of the people in the argument indeed, I linked to it: http://news.ycombinator.com/item?id=3356517

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