Working Toward a Startup Definition
A concise startup definition is hard to come by. The traditional visual of a startup is a group of tech geniuses in a dorm room creating an exciting new software or app. But then you have relatively large companies classifying themselves as startups. Does it have to do with the size, the product, the people, or a combination of all three?
You will find a variety of startup definitions depending on the person you ask or the book you read. A company that is six years old could still be considered a startup. People commonly define a startup as a brand new business venture meant to address a common pain point in an industry in a radical or innovative way.
There are others who define a startup as a state of mind or a particular mentality employed by its founders and employees. Startups are associated with instability and uncertainty. Along with the excitement and innovation associated with startups, there is also an underlying understanding that the entire project could very well fail. Some feel that this charting into the unknown is a fundamental aspect of a startup.
The online Oxford Dictionary defines a startup simply as “a newly established business.” This straightforward start up definition pays very little lip service to the multiple conceptions out there. One key feature of a startup is its potential for rapid growth and its ability to scale up quickly.
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What Is a Start Up and What Are Their Success Rates?
So what is a start up? We can think of a startup as a relatively new business meant to provide a product or service in a radical or innovative way. But there is also some marketing value in simply calling your company a startup, regardless of whether you truly fit the startup definition.
The Marketing Value of Calling Your Company a “Start Up Business”
A start up business is associated with innovation, excitement, and possibility. Marketing your company as a start up has provided companies the kind of cool factor required for winning highly qualified candidates at a relatively cheaper salary than they would otherwise demand.
When it comes to gaining investors, promoting your company as a start up business can be both an asset and a liability. On the one hand, an investor is naturally keen to recoup their investment down the line and may be hesitant to put money into a company that is challenging the status quo. When those ideas work, they are stunning, but there is also a reasonable chance that they will fail.
On the other hand, an investor may be excited by a start up business and inspired by its project. Marketing a company as a start up can attract investors trying to be the first to the scene of something big before everyone else comes swooping in for a piece.
But as the startup definition gets more and more ambiguous, the first issue may become less of a problem. Since so many people associate a start up business with an attitude or company culture, a place with many employees and decent growth could still benefit from calling themselves a “start up” while still enjoying the perks of having an established reputation.
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The Huge Gamble of Launching A Start up Business
When people think of a start up business nowadays, the first companies that come to mind are the massively successful ones. We’re talking ride-sharing app Uber. We’re talking the local-global alternative to hotels, Airbnb. We’re talking the massively popular photo and video-sharing app Snapchat.
Image Source: Startup Definition
After absorbing all the news stories about the massive success of start up businesses like these, it can be tempting to glorify the start up life. But don’t let these Cinderella stories give you a false sense of ease. Ninety percent of all startups fail. That is a sobering number.
According to post-mortem reports published by the CEOs of failed startups, the number one reason startups flop is simply that no one wants to buy what they’re selling. Forty-two percent of the start up businesses polled by CB Insights reported that there wasn’t enough need for their product in the market.
Other reasons reported by start up business CEOs include:
- Lack of capital (29%)
- Putting together the wrong team (23%)
- Strong competitors (19%)
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The Adoption of the “Start Up Business Culture”
The idea of the start up business has become so trendy that even long-established businesses are looking to take a few cues from it. Companies are starting to realize that culture has a significant impact on operations and performance. Employees are increasingly seeking work environments that are dynamic, collaborative, and conducive to creativity.
Even self-identified start up businesses struggle to determine what their distinct company culture is. Some founders wait and see what kind of culture will organically materialize while others insist upon establishing guidelines from the jump. Typically, they will start by determining their company’s mission statement and core values. Basically, an explanation of what their goal is and what they will and won’t do in order to get there.
In determining their values, start up business founders will look to what kind of dynamics they want to create with their employees and what guiding principles should be in place. Personal experience with former places of employment are often a good starting point for what they’d like to emulate and what they would rather do without.
Start up businesses then find ways to incorporate these values so they don’t become a few bulleted points that employees quickly forget. One common way is through reminders in team meetings or awards for people who exemplify those values in their everyday work.
Establishing and encouraging these core values is also important for maintaining the motivation needed to navigate the rocky waters associated with a start up business. Employees are usually at a start up because they believe it will make a difference or do something groundbreaking.
What Kind of Start Up Costs Are There?
Start up costs encompass the capital and resources you will need to start your business. Obviously this term isn’t limited to companies that identify as start-ups. Even if you’re starting a brick-and-mortar bakery, the funds necessary to get started are still considered your business’s start up costs.
Ensuring your company is financially successful takes more than customers–although that’s certainly an important component!
Image Source: Start Up Business
Naturally, your start up costs will vary depending on what kind of business you are starting. One of the best ways to prepare is by creating a business plan. This is vital when applying for loans, but it is also a helpful roadmap that can allow you to navigate any roadblocks that turn up.
Some of the most common start up costs include:
- Real estate
- Equipment
- Communication
- Salaries
- Insurance
- Legal permits & licenses
- Marketing
Real Estate
Real estate is a pricey start up cost. If you’re setting up a brick-and-mortar store, there will be a lot of decisions to make regarding how much you’re willing to pay. If you’re running an online business out of your home, this may not really be a consideration, but it could be something you’ll have to think about down the road if your business grows.
Equipment
The equipment you need will vary depending on what kind of business you’re opening, but some questions remain the same across the board. Will you buy your equipment? Or will you lease or rent it? This is a strategic decision that can have a significant impact on your start up business’s financial health. Leasing a piece of equipment instead of sinking a lot of needed cash by buying it can be a smarter alternative in some situations.
Communication
If you’re running your start up business from your home, then you will be using your existing phone and internet. If not, you will need a phone line and possibly internet in your new location.
Salaries
One big start up cost is salaries, even if you only have a couple of people on your payroll. Benefits or perks may also be necessary to prevent them from jumping ship to a more established company and costing your project vital talent.
Insurance
Depending on how much you have riding on your new start up business and what kind of business it is, insurance may be a way to get some peace of mind for any number of what ifs.
Legal Permits and Licenses
There may be a whole host of permits or licenses your business needs in order to operate legally. After you’ve figured out what these are, there will definitely be fees required. Make sure to find out what these are in advance and incorporate them into your start up costs.
Marketing
This may sound like something you can put off until after your business has become successful, but unless you’ve initiated some killer word of mouth, you’re going to need some marketing. Start up businesses can benefit from grassroots marketing through social media, but they may need to invest in professional consultants or paid advertisements. Think of how much you can afford to allocate toward these and plan accordingly.
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A Few Often Forgotten Considerations When Planning for Start Up Costs
Start up business owners can get so caught up in raising funds for the glaringly obvious (like rent and salaries) that they may forget to plan for other factors. These often forgotten but vital considerations can prove crippling to a company’s longevity.
Borrowing Costs
Getting approved for a loan can be a source of relief, but make sure you think about the long-term features of that loan, particularly its interest rate. It may be a while before your start up business is making enough of a profit for you to be comfortable, but your loan doesn’t care about that. Make sure you make an honest assessment of your projected earnings and whether your loan’s interest rate is something you can handle.
Benefits
As mentioned earlier, benefits and perks are something you’re going to have to factor into the cost of your employees. Some employers may think giving a wage or a salary is more than enough, and legally, that may be all they are required to do. But if you do not provide some kind of incentive for talent to work for you, when the initial allure of your start up business fades away they may be tempted to look for greener pastures.
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Available Cash/Liquidity
Plugging all of your available money into your start up costs and failing to leave a little bit of cash on hand can make things exceptionally difficult when unexpected costs arise.
Launching a start up business is an exciting endeavor, but launching a successful one requires proper planning. The odds are stacked against start ups, so making sure you have enough money, a focused vision, and adequate demand for your product can set you on a path toward an innovative and successful company.
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