By now you’ve probably heard the term startup a thousand times. But do you know exactly what a startup is and how it differs from other kinds of newly created companies? Is everything that glitters a startup? In this article we look at what a startup is and the factors that set it apart from a regular SME.

In a previous post we talked about the differences between an entrepreneur and a businessman. Well, with startups and companies it’s pretty much the same story. Is the concept of a startup being watered down into just a fancy word for “company”? Let’s go through the differences to clear up any confusion.

What is a startup: features and how it works

A startup is a company, but not every company is a startup. With that in mind, what is a startup and what are its main features?

Newly created

As the name suggests, a startup is a newly created company in its development stage. That said, the concept has come to be tied much more to other characteristics than to its age, so many startups that have been around for years are still considered startups thanks to other traits linked to their business model and the way they operate.

A different case is that of successful startups that have evolved into huge corporate giants, like Facebook.

Innovation

Not every company has an innovative streak. But innovation is part of the very essence of a startup, which builds its business model around original, innovative ideas.

They aim to meet a need with something that doesn’t yet exist on the market, or isn’t properly developed.

Tech-driven

Technology is an essential ally for any startup, given that we’re talking about innovative business models with global, scalable ambition. Their development therefore tends to have a strong tech component — both in the product or service itself and in how it’s distributed, marketed, supported, and so on.

Scalable business

The ambition of most startups is to build a scalable business. In other words, one where profitability can be multiplied with the same investment: reaching more with the same resources.

Funding sources

Unlike other types of companies, startups don’t usually turn to traditional funding sources, such as a bank loan. In fact, their modus operandi is to kick off with a minimal personal investment and the work of the founding partners, who tend to cover all the basic roles needed to develop and launch the business.

Once the startup’s business reaches a certain maturity and is ready to enter a growth phase that needs extra investment to make the leap, the most common route is to turn to funding rounds or private investors (Business Angels).

Global ambition

Unlike other types of companies, a startup’s business isn’t usually tied to a specific geography. Their ambition is global and crosses borders, which goes hand in hand with their innovative, technological and scalable nature.

Spirit and risk

Risk and uncertainty are much more present in a startup than in other types of companies, since we’re talking about innovative ideas that meet a need but have an uncertain path until they actually launch and find their fit in the market.

The uncertainty around how the market will react to a genuinely innovative offer is something most startups already live with, often kicking things off with a spirit closer to a business adventure than to a conventional company.

These are the main features that define what a startup is and how it differs from other types of companies. Care to share another startup trait we could add to the list? Do you think the concept of a startup is being watered down now that it’s become trendy? What’s your take?