We have all read the articles, heard the news and discussed the hottest “start-up”. This term “start-up” though gets used now for so many different types and sizes of company. When we see companies with billion dollar valuations alongside companies which solely work out of coffee shops with zero revenue and zero funding, both being described as being “start-ups”, you’ve got to wonder what does “start-up” actually mean.
So, I wanted to take a moment to explore how different people who are at the coalface are using it.
Let us get started with a definition provided by Simon Stockley, Senior Faculty in Management Practice at Cambridge Judge Business School:
“A start-up is a business in search of a viable business model.”
This definition has the benefit of being clean-cut. It also helps to explain why a seven-year-old company which has raised USD 8.7 billion yet reportedly is not turning a profit (i.e. Uber), can be called a start-up. They, like so many other tech businesses, have a business model which should be viable but are yet to prove it will be. Once a company has become regularly profitable, then it is no longer a start-up.
Simply there is no consensus. At dinners and events, I’ve asked fellow entrepreneurs what “start-up” means to them. Responses ranged from finding the term almost offensive as they felt it implied they did not know what they were doing. On the other end of the spectrum, there were those who loved the term. For them being a “start-up” was wrapped up with ideas of ambition, scaling and iterating. It’s about a state of mind opposed to the state of the business.
These different interpretations weren’t split along the lines of tech versus more traditional businesses. I’ve even heard of traditional bakery companies which have embraced being “start-ups” – the most tech thing about them is that they have Facebook page.
For those starting a new venture and looking for routes to support plus funding, incubators and accelerators have become a first port of call. Often pitched as supporting start-ups, what they mean by that can vary between programmes and even within the same organisation.
Bethnal Green Ventures is an early stage investor and support programme for startups that tackle tough social and environmental problems. Jessica Stacey, partner at Bethnal Green Ventures, explained that “From our perspective, a startup is an organisation that has been founded to solve a particular problem, with an ambition to scale and impact the lives of millions of people.”
Andrew Humphries, co-founder of The Bakery, when asked what does start-up mean candidly replied “This is a great question. “Start-up” is a term we’ve been struggling with since we started The Bakery!” As The Bakery helps corporates innovate by engaging with “the entrepreneurial ecosystem, finding terminology that doesn’t conjure up two guys in a garage with a MacBook, has been tricky!” Instead they turn to words like “innovators” or “early stage companies” which for their market may have more positive connotations.
Michael Moritz, chairman of Sequoia Capital, has described venture capital (and managers of professional football teams) as “transfixed by the possibilities of eternal youth”. The popularity of companies, and those around them, to use the word “start-up” when describing a company, I believe is tied with Moritz’s idea. The word “start-up” is intrinsically linked with a new start, new ideas and a new exciting journey. It makes for a more inspiring concept than a company with hundreds of employees which continues to raise lots of money and still makes losses. If that same company is a start-up, there is a promise of a brighter tomorrow.
For me, having been a founder of and advisor to companies, being a “start-up” is a mixture of Stockley’s definition and Moritz’s description of venture capital. It’s about believing tomorrow will be better if you work hard conceptualising, testing and iterating a business proposition until you reach the point that the company is sustainable. And then you keep on improving and developing the businesses. As a business you hopefully reach the point where the company has proven itself and is sustainable, but your culture remains that of a start-up: innovating, executing and building for tomorrow.
By Stephen Parkes, CEO, Go Enrol