Popularized by the business rush unleashed by the Internet, the public began to use the term start-up to distinguish newly created or emerging companies. ∏ero What is a start-up?
But in reality, not all start-ups are start-ups. The term startup or start-up designates a newly created company that has a risk profile and great potential for growth (called scalability).
Start-ups are usually companies linked to innovation, and technology, with a large web component and financed through venture capital. They operate with minimal costs and earn profits that grow exponentially by virtue of the intensive use of the communication platforms provided by the Internet.
Y Combinator’s Paul Graham says:
“ A startup is a company designed to grow fast. Being newly created does not make a company a startup. You also don’t need to work in technology or use venture capital or have some sort of “exit” scheduled. The only distinguishing feature of a startup is growth. Everything else we associate with a start-up is a consequence of growth…”
Let’s look at a numerical example. A company that grows 1% weekly after one year will have grown 1.7x, on the other hand, if its growth rate is 5% weekly, after one year we will have 12.6x. If the first company earns $1,000 per month, 4 years later it will be earning $7,900 per month. In the case of the second company, after 4 years it will earn $25,000,000 per month. As we can see, small differences in the growth rate have profound consequences.
It is precisely the promise of rapid growth that attracts venture capital, first in the form of business angels or angel investors who, in addition to capital, usually provide quality contacts and experience.
For an angel investor, the business consists of making small investments (in relation to the investment that would be required to participate in a large company or project) in several start-ups given the high probability that one (or several) of them will take off and scale exponentially. , producing profits that far exceed the initial bet in several companies.
Evolution Of A Start-Up
At this stage, the idea of a potential product/service arises for a target market large enough to develop it. Some probable business models are analyzed to see how money is going to be made. At this stage, there may be a single entrepreneur or an uncertain team. There is no clear commitment and there is no firm idea about the team’s abilities.
At this stage, the idea begins to consolidate, and the target market is defined more clearly. A plan for the next (minimum) 3 years begins to be devised, and milestones to be reached along the way are defined: 3, 6, 12, 24, and 36 months. There is an executive team of 2 or 3 founding members with balanced participation. An extended team with less commitment to the project can also begin to emerge at this stage.
We already have a founding team with complementary skills and a written commitment that includes: a commitment of time and money to contribute for a minimum of 2 years, and milestones to be reached defined over time.
At this point, the founding team can already show some initial traction (growth and profits) and/or continue to attract other resources (money or participation in the company). In this stage, a clear market validation is sought to continue scaling the project.
Once there is clear and demonstrable growth in the chosen target market, it is sought to scale the business quickly and/or attract funding.
Once strong growth is achieved, the company is expected to remain strong. External resources are more easily obtained. You often want to maintain the startup culture for as long as possible. Sometimes the founders leave their place in the company and are replaced by professionals.
The End Of A Start-Up
A company can stop being a start-up due to an endless number of situations, among which we can highlight: becoming very profitable, listing on the stock market, or ceasing to exist by merging with another company or being acquired by another.
Marek Fodor, mentor, and founder of Kantox and Atrápalo propose the following six criteria to identify that a startup has ceased to be one :
.The company has more than 2 years of life.
.The company has reached full-time.
.Most people in the company do not work more than 8.5 hours a day.
.The main source of inspiration is no longer the ideas themselves but the ideas launched by the competition.
.The founders have separate offices from the rest of the team.
.The founders may not be in the office for several days and the company continues to function as well (or better) than with the present.