What’s a Startup?

Startup word cloud

Startup word cloud courtesy of Startup Weekend

[Note: there are a couple affiliate links in this post for relevant books on the subject that I’d recommend.]

Startups are not two guys in a garage or a kid in a dorm room (although some of them can be).

Startups are everywhere.

Startups are in large and small organizations in every sector of the economy, in non-profits, and in government.

The media likes to portray startup entrepreneurs as plucky underdog protagonists up against a big mean behemoth monopoly. It makes a good story, but it isn’t a true representation of reality.

So, what is a startup?

When I talk about startups, I use Eric Ries‘ definition of a startup:

“A human institution, creating something new, under conditions of extreme uncertainty.”

Also, when I talk (and write) about entrepreneurs, I’m generally talking about startup entrepreneurs – the people that found and run startups, as defined above.

There are many new businesses that aren’t “startups” – such as restaurants, stores, plumbers, construction companies, CPA firms, etc. These businesses still have uncertainty (most businesses fail within the first few years), but they don’t have unknown and untested business models like a true startup.

For example, if you’re opening a restaurant, the structure of your business model will be the same as that for about any other restaurant. You know where your expenses and revenues will come from. Sure, you’ll have different costs, partners, clientele and competitive advantages from your competitors; and your success will be uncertain and you will work very hard to try to ensure your success. But unless you do something revolutionary with the standard restaurant business model (e.g. giving away the meals for free), your business is not a startup.

I own and run two different businesses. One is a startup and one is not. The non-startup is a custom software consultancy. It works pretty much just like all other similar businesses. I’m not doing anything fancy with the business model because I don’t have to – it works just fine the way it is.

My startup is quite different. I’m trying to create something brand new in the world. Its value proposition isn’t fully verified. I don’t know who the eventual customers will be. The business model is continually evolving – it may end up being one of (or a combination of): ad-based, freemium, multi-sided, or virtual goods.

Another startup I’m involved with is in the education space. I’m working with some administrators in the Ankeny, Iowa school district to reinvent education. We’re working to create a new system of education and are unsure how it will turn out or what it will look like when we’re done. Our effort matches all three parts of the definition of a startup and we are thus startup entrepreneurs.

In this example, whether it’s a startup is not as obvious. However, I choose to think of it as a startup because it’s then more natural to think about applying principles and techniques designed to help startups (such as those in the Lean Startup movement) to our endeavor, and thus increase our chance of success.

(I’m sure I’ll write more about the Lean Startup and related principles and techniques in future posts.)


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