What is a startup? Definition, characteristics and operation

Startup
  • Jonathan Rowe
  • 18.03.2023

The business model behind the term is increasingly becoming the ideal solution for young entrepreneurs with innovative solutions and a desire to respond in new ways to identified needs.

Being inspired by the work of startups can help some managers who want to rethink or adapt their ways of working or integrate new skills, such as developing intrapreneurship.

A startup is also an opportunity for investors who are not afraid of risk and want their financial capital to grow.

To understand what a startup is, you need to know not only the nature of the emergence of these companies, but also the legal forms they can take, as well as their main characteristics.

THE CONCEPT OF A STARTUP

Knowing the meaning of "startup" is the first step in understanding what a startup is. This concept can be viewed through definition, its legal characteristics, and the importance of a business plan for this type of company.

Meaning of the concept

Etymologically, the term "start-up" is an Anglicism formed from the combination of the words "start," which means to start or launch, and "up," which conveys the idea of elevation, growth or rapid development. The term "startup" is a shortened form of the term "start-up company."

To understand what a startup is, you need to define it as a company that starts out and invests heavily in researching and developing a revolutionary offering with the goal of achieving exponential economic development in the long run.

Preferred areas for startups are:

  • Technology;
  • Biotechnology;
  • Digital Technology;
  • Medicine;
  • Ecology.

After the above introduction to what a startup is, it would be appropriate to look at it from a legal perspective to better understand it.

The legal point of view

In terms of structure, there is a fundamental difference between a startup and the vast majority of other companies.

For example, while the goal of a startup is to develop an innovative, functional and marketable product or service in the long term, a company is usually organized to sell an existing product or service and maximize the profit that can be made from it.

However, these two concepts converge on the question of legal status.

Indeed, like any business, a startup can take one of several predetermined legal forms, examples of which are a public company, a limited liability company, or a simplified joint-stock company.

Because of its advantages of legal status, the simplified joint-stock company is most commonly used by startups. This form of legal status is characterized by great flexibility and freedom in the internal organization of the company.

THE BUSINESS MODEL OF STARTUPS

One of the characteristics of a startup is that, unlike traditional companies, their business model is rarely established. Many are slow to create their business model, and it takes them months or even years to find it. They look for ways to become profitable and make twists and turns to sometimes define a profitable business.

While this process is often exciting, creating a startup is especially risky and difficult. Many projects fail to find their business model, and only a select few manage to become a young, innovative company worth more than a billion dollars.

However, there are also alternative solutions, such as joining a group, reselling their operations or patents, etc.

The role of the business plan in these types of companies

A business plan is inextricably linked to the concept of a startup. It represents the totality of all information related to the development of an identified idea, service or product. It presents:

  • A description of the team that makes up the startup;
  • The concept to be implemented;
  • Relevance to the market and the needs to be met;
  • Goals to be achieved;
  • Indication of the time needed to achieve the goals;
  • Financial projections;
  • Development strategy.

Reading a business plan allows you to understand what the startup is about, what its project is about, and what its roadmap is. The data it contains and the perspectives it provides make it the startup's main advantage when applying for funding.

MAIN CHARACTERISTICS

In order to fully understand what a startup is, it is necessary to present its main characteristics. They are common to almost all such companies.

Risky ventures

One of the factors that best defines what a startup is is the concept of risk. For these young companies, the level of risk is usually very high.

This is primarily due to several reasons, which is a risk for any business. In the case of startups, in addition to the usual risks, there is the offering of an innovative proposal for which there is no reliable data about its acceptance by the market.

Therefore, the new proposal is likely to be rejected, resulting in the loss of all invested resources. The failure rate is particularly high for start-ups, and this justifies the caution of investors and banks that are asked to finance them.

Nevertheless, many startups are successful and even dazzlingly successful, which is a source of motivation in the face of attendant risk.

Funding Needs

Most startups require significant funding, the scale of which is related to:

  • The innovative nature of the projects they support;
  • The novelty of their concepts, which typically require the development of specific and new infrastructures;
  • The inability of project leaders to fund themselves with their own funds.
  • There are several possible sources of funding for aspiring entrepreneurs to meet their financial needs:
  • Business angels;
  • Support from family and friends;
  • Crowdfunding;
  • Bank loans.

The promise of profitability

The promise of profitability is closely related to what constitutes a startup. An innovative offering, typical of this type of company, once developed and brought to market can be a dazzling success and generate enormous profits.

It is this promise that justifies the risks taken and investments made to fund the startup.

Established companies

A startup is not meant to be a young company forever. When it succeeds in achieving its goals, it logically becomes a company in the traditional sense of the term.

To understand what a startup is, you need to take into account this inevitable evolution from a young startup to a mature company, after going through the stages of experimentation, operation, and optimization of the offering.

Greater agility

A startup's flexibility is evident in its structural organization and mode of operation.

Its modern, flexible strategies promote internal cohesion, harmonious relationships with customers, and efficiency in achieving its goals.

Many start-ups choose "lean start-ups", Agile methodology and other management techniques known for their flexibility.

The entrepreneur who knows what a startup is in detail already has some tools for launching his own startup.

Share:

Leave a Reply

Your email address will not be published.