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What is a startup? This might seem like a stupid question but the answer is not that obvious. Today, we will try to answer some of the questions you may have about startups.
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You can find startups emerging everywhere and anywhere you look around you. Now more than ever, startups are flooding the whole marketplace in different parts of the world. In fact, even students are being advised in schools and educational institutions not to wait for their graduation and look for a job. Instead, they are told to work as hard as possible while still studying so that they can make a name for themselves through investing their time in business innovations and startup.
These days, stories and tales of startup business owners and entrepreneurs are often found and seen on the front pages of newspapers and magazines which serve as an incentive or encouragement for more and more people to create and brainstorm ideas which are worthy to invest on.
People consider technological breakthroughs as things which can revolutionize the whole world and open more doors of abundant opportunities to people. This is the reason why more resources and funds are made readily available for the start of feasible businesses and startups.
If you are part of the technology industry or you are residing in a tech hub like Silicon Valley, New York or Hong Kong, chances are you are someone you know is already in the way of creating concepts or launching his/her very own startup. But, let's be honest, even many people in big startup hubs don't really understand the startup concept.
Startup: What Is It?
For the longest time, investors have looked at startups as just smaller versions of big corporations. However, this was actually a problem since there is an expansive ideological and even organizational difference between startups, small businesses and large corporations, which calls for varied KPIs and funding strategies.
According to a legend of Silicon Valley and serial entrepreneur, Steve Blank, startups can be best defined as temporary organizations made to search for a scalable and repeatable business model. Argued in the tech industry content, a startup must be short for scalable startup which aims not just to prove the business model but to do it quickly in such a way which will have a dramatic effect on the existing market.
Business startups, or otherwise called startup companies or simply startups, are companies at the initial stages of development of service or product which are believed by the business founders as in demand in the market. These companies are often financed by the founders themselves but since this type of funding cannot be sustained well into the future, it will need extra financing from venture capitalists and investors.
Even though this kind of companies exists in every type of business all over the globe, the term is primarily associated with information technology as well as the launch of numerous internet startups back in the 1990s during the dot-com bubble. Most of the internet startups went down to failure mainly because of the lack of sustainable revenue or significant flaws in the underlying business plans they used.
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Some of the internet startups managed to survive even after the bubble burst. Good examples of these include the online bookseller Amazon and eBay, which remains as one of the leading online auction places.
A big chunk of this startup activity came from a place in California called Silicon Valley which remains to have plenty of startup company activities up to this day.
A company will cease to be called a startup up once it has already gone through several developments, like being traded in public or being acquired or merged into a bigger corporation which puts a stop to it being an independent entity. However, during an unfortunate turn of event, a startup may fail and stop its operations altogether.
However, your company can still be called a startup even if you raised billions of dollars or if you are publicly traded. For instance, Uber, AirBnB or Facebook are worth billions but are still considered as startups because their pursuit of growth is still what defines them. What is a startup then? A company whose true north is pursuit of growth - no matter how big or how old they are. This is what the 'up' of 'startup' means: growth.
Difference between a Small Business and a Startup
A startup is usually misunderstood as just a small new business. In reality, there are significant differences between these two entities. Based on Blank’s description, the founder of a scalable startup refuses to be his/her own boss and instead, he/she wants to conquer the whole universe. Right from the first day, his/her main purpose is to grow his startup into a disruptive and large company. He/she believes that he/she has stumbled upon the next big idea that will shake up the whole industry, create a whole new market or take customers from the existing companies.
This belief is a stark contrast with the true definition of small business, which is described by the experts as an independently operated and owned entity organized to generate profit and not to dominate the field where it belongs.
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What is a startup vs what is a small business? It only goes to say that these two business models have completely different driving forces.
The purpose of a startup is to disrupt the entire market with an impactful and scalable business model while the objective of small business owners is to be their own boss and establish a name in the local market.
To make it simpler, the latter is the popular model of entrepreneurship in the US, from grocery stores, to hair salons, delis, electricians, plumbers and others and there is no way to overstate their contributions to the local economy. But, for better or for worse, the primary motivation behind small businesses is significantly different from that of scalable startups.
Do you want to grow you startup?
Startups should focus on growth - So, they should not stay small for long
A startup’s organizational function is to look for a scalable and repeatable business model.
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It means that startup founders have three primary functions:
• To offer a vision of a certain product with several features
• To come up with a series of hypothesis regarding every piece of the business model, which includes the identification of customers, distribution channels and how the company will be built and financed.
• To quickly validate if the business model is correct through seeing whether the customers behave as predicted by the model.
With this definition, it only goes to say that the model a business model is proven, the organization’s function should shift to create outcomes and execute the said model. In most instances, it requires of getting rid of the innovation and agility which used to exist during the business’s early days.
If your startup is stagnating, there is something wrong. You should always try new channels, techniques or hacks to rev up your startup growth.
Startups Have Different Funding Needs
When we talk about startups, we often (Or always) think about investments, equities, funding rounds... Although both a small business and a startup will likely commence with funding from the savings of the founder, family, friends or even a bank loan, once a startup becomes successful, this is expected to receive extra series of funding from venture capitalists, angel investors, and eventually, an IPO or initial public offering. With every series of funding, the equity of the startup founder is also eroded while the company’s ownership becomes diversified.
Later on, a startup may no longer exist in the form of an independent entity through acquisition or merger. For small business owners, relinquishing their control would defeat their purpose for running the business. However, this is necessary for startups in order to scale growth.
Even though a small business owner and startup founder are both entrepreneurs, the primary function, the intent, and funding of the respective business models have radical differences.
Preparing Your Startup Business Plan
• Write it down.
If there is something that will boost your chances of success, this is to write down your startup business plan for complete details. There is very little accountability until things have been written down. There are lots of business owners who claim that they will commit to doing things only to end up not doing them at all. To save themselves from accountability, they just claim that they didn’t really mean what they said earlier.
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Having a documented business plan, plan of actions and marketing strategy is key to startup success. The really sad part is the fact that time is lost as they excuse themselves for their non-performance and they just start the cycle over again. As long as your desires and thoughts for your business have not been written down, you will only give yourself an airtight excuse for doomed failure. That is why you have to understand that the secret to success is at the tip of your pen that will surely make you feel more motivated.
A lot of entrepreneurs believe creating a startup is just about raising funds. They could not be more wrong. Your startup needs to have a monetization system in place and a strategy to become profitable.
• Be committed.
What is a startup without commitment? It's just impossible. Commitment is the base of entrepreneurship and defines the entrepreneurial DNA! After you finished writing down your startup business plan, this is also the time that you add a true commitment to your success. The simple task of writing things down can speed up the process of a successful performance. Once you unleash your thoughts and ideas, you will feel more committed to seeing them through to the end.
• Do it right.
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It may sound boring but writing down all of your plans is just the start of your journey to success. Just think of this. Eventually, you will need procedures and policies which are in writing in order to grow and hold other people accountable.
It might be wise if you develop the habit of writing everything down in your plan for your startup business.
While formal education can make you a living, it is self-education that will ultimately make you a fortune, and a big one at that. Running a startup is no easy feat. You have to start the whole process correctly and you will find it easier to experience and grow your startup success.
The growth of your startup will not get any bigger than your thoughts. You have to urge yourself to think bigger. You have to believe in yourself to come up and have everything you want. Just remember to put things into writing as this is the secret to have a good startup business plan that will bring you the success you dream of.
Effective Ways to Raise Your Startup Capital
Among the biggest problems that startup founders have to deal with is where they will get their startup capital. There are various ways on how you will be able to raise capital for a startup. For starters, you have to know first what startup costs and assets you will incur during the set up of your business. It must all be cited in your business plan since most lenders will want to see to your business plan to know if it will be worth the risk to invest into your business. It is also a must to make sure that you are aware of the liabilities you will be risking.
• Savings
A good method to raise finances for your startup costs is to use your savings as investment, if you have any. Through investing your money straight from your pocket, you can save money down the road since this is not something that will require you to pay interest. You have to guarantee that you are not scared to lose this money just in case the business failed to be successful as you originally wanted it to.
• Bank Loan
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A bank loan is a great way to raise your startup capital wherein you will only be paying a low interest. Also, there are flexible lenders now that will let you determine the amount you will pat every month so you can settle the amount you borrowed.
When you take a bank loan, it is advisable to open a different business account from a personal account for you to monitor exactly what goes in and out of your account.
Refrain from agreeing to the offer of the first bank you talked to. Try to ask around first. When you have a business plan, you can barter with banks to find the best rate. The use of the internet is also a great way to check the charged rates of each bank for the loan you will apply for. In many cases, you will also have to meet with their loan officer.
• Partnerships
Through becoming a partnership and being the owner of a percentage of the business, it will lessen the amount of money you will invest in the company. For instance, if your friend considers your business as a great idea, you might want to talk to him and inquire if he would like to put a certain amount of money into your business. But, remember that this setup means that he will also have the rights to a certain percentage of the profits your business will make.
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If he/she gives 40 percent of the money on the business and your earnings reached $100,000, he/she is entitled to get $40,000 of this earning. Although it might seem disadvantageous to give away a chunk of your business, this is also a great method as both of you will have good ideas on how to take your business to the next level.
A partnership can be composed of 2 to as much as 20 people who own one business so it doesn’t mean that it will only be you and another person who will invest.
Basically, raising a capital for your startup business will vary depending on how you plan to run or operate your business. You have to weigh both the pros and cons of every method and decide what plan will best suit your business. Make sure that you trust every person you will deal with. Finally, you must have a healthy and solid relationship with your associates.
What is a startup, which doesn't raise capital? This is possible even if it's rare. Indeed, a startup doesn't need to raise capital to grow depending on its business model. But, at some point, if the startup wants to accelerate and grow even faster, it will most likely need to raise funds.
Top 5 Problems Faced by Startups Today
If there is an untold truth about startups is it the fact that it is not as easy as it seems to launch and maintain one as what successful entrepreneurs made you believed. Despite the new avenues made available right now to help startups emerge and bloom, still, there are some challenges which continue to exist. If you are an aspiring startup entrepreneur, you have to brace yourself for several roadblocks and time-tested challenges.
There are many reasons why startups fail and warnings you should watch out for when starting your entrepreneur journey.
A startup faces challenges at various stages and different rugs up the ladder before it finally reaches the much-coveted success.
Problems may differ according to the difficulty experienced in carrying out different objectives and goals and the ability of an entrepreneur to handle these problems as they arise is a huge benefit.
The startup entrepreneurs can make mistakes which depend on the kind of startup or group of people who work together. But, there are several challenges that startups face on a general level these days.
Below is a quick list of the 5 most common challenges your startup may face which can go a long way in determining if your startup will fail or succeed.
1. Funding
This is probably the biggest issue that comes first on the list. Funding remains to be among the major challenges that an emerging startup will face. It is a somewhat dicey problem in the sense that all investors prefer to place their money somewhere they feel as the safest.
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This is why they often invest their cash in already successful and established startups and not as often in startups starting from scratch. While this may seem logical for investors, it puts limits on the number of successful startups you can find. There are several startups right now that, when given enough funds, can become big time trailblazers in the field they belong to.
However, they don’t have readily available funds for the reason that investors opt to be logical by investing in the most prospective and established startups.
2. Unfeasible Goals
It is always advantageous and helpful to set your business goals. These goals give direction to your business, offer a means of measuring its growth in time, serve as a way to assess success or failure of your business and act as a method of making your business go head to head with other businesses belonging to your niche.
In running a startup, it is a must that it manages to surpass or at least meet all your set goals. This will show you that you are on the right track for your future success. But, many startups get things wrong on the point of goal setting. In many cases, upcoming startups come up with goals which are unrealistic, given their size and structure.
Also, after a huge success, there are startups that raise the bar and during the process, they create goals which stretch them too thin. In order to be consistent, you have to set high yet generally attainable and controlled objectives and goals considering your capability and level of resources of meeting these goals.
3. Lack of Innovation
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What is a startup without innovation? It is sad but the desire to create startups and make more money overnight has created several norms in the minds of people today. Thus, it is no longer a surprise that majority of startups are mere knocks of old and more successful ones.
Today’s entrepreneurs are extremely lacking in terms of innovation. When clients and investors see these, they think twice in making investments as they don’t see the difference of the new startup from the old one.
A primary method to attract funds for your startup is to have at least a single unique feature which will make you stand out from the crowd. People often embrace re-imagined ways of carrying out things instead of favoring completely innovative and new methods. Its consequence is that it trumps down on innovation.
4. Personnel Selection
It doesn’t matter if you have great business management skills because sooner or later, even the smallest startup will need a team that can do the work for you. Being able to find the right members for the team can be quite challenging. You need to choose people who share the same passion with you and those who have the ability to handle all the hardships associated with the job.
The right people can help you a lot. Eventually, their skills will help you relieve some of the work. Selecting the right people is a task you have to do with utmost impartiality and care. An applicant’s character might tempt you to hire him right away only to find out that you made a big mistake and you hired an unfit person. You have to avoid all biases when you are searching for the right people for your startup.
5. Decision Making
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It is a challenge often faced by businesses with several owners. Although partnerships are good as these offer a bigger capital base, such businesses are often composed of founders who have different backgrounds and varied and sometimes conflicting business orientations.
It is these different orientations which can affect the decision-making process. When you run a startup, decisions must be made fast, particularly when you have a small window of time to act on or if the opportunity available is about to close. It is imperative to make tough decisions in the fastest way possible.
So, what is a startup?
A startup is not a new company, not a tech company, nor a new tech company. You can be a new tech company, if your goal is not to grow high and fast; then, you are not a startup.
Therefore, a startup is a business, which aims to grow and scale. Some startups might need to find funding but this is not compulsory. Indeed, if you have a business model where you are already making profits, funding might not be needed. Funding is needed if you have large investments to do like factories, staff, tools, technologies or if you want to accelerate and grow faster.
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