What is a Startup?
October 30th, 2022
Anyone in the business world will have heard the term "startup business." While many of us have a general idea of what this exactly means, let's look into the critical aspects of a startup and how being one works.
According to Wikipedia: A startup is a company founded by an entrepreneur to seek, develop, and validate a scalable business model.
Startups typically do not have a fully developed business model, meaning they often lack the financial ability to level up to the next phase of business. Startups are initially funded by the founder, family, and friends. Thus the need for outsourced investors, whether in the form of crowdfunding or individual angel investors, VCs, or family funds.
I want to found a startup: How do I do it?
Step one is having a great idea. Something that you believe is unique and missing from the current market. From there, you can research the idea's feasibility before creating your business plan.
It is time to start with your fundraising journey. Once you have initial funding, you can register your business legally before beginning your advertising and growing your business.
Startups generally follow the same set-up model as any business with a few differences, namely the flexibility to adapt, hiring at an earlier stage, and the apparent differences in funding.
Key features of a startup
Growth Potential
Startups have a huge ambition to grow, which may set them apart from other small businesses that are starting. While some companies are happy with making enough to cover expenses and living, startups aim much higher.
They also tend to have a highly scalable business model. For example, the messaging service Snapchat went from zero to over 100 million users (with an impressive valuation of $15 billion) in less than five years. In addition, they have been tipped to potentially be worth over $200 billion within the next five years if they follow a similar monetization route to Facebook (according to marketwatch.com). The growth was incredible, and with no direct cost to them, each time a new user joined, it allowed them to maximize this.
Functioning differently
A startup isn't meant to be just your run-of-the-mill company. Instead, they aim to dislodge huge, established competitors by doing things differently.
Take superhuman.com, for example; they are not the only email service out there. Yet, they managed to shake up the industry with their gamified approach. They designed a unique, helpful, and loved platform by consumers.
Similar to what Google did when it created its search engine. Engines such as Yahoo already existed but what Google did differently was rank results by authority. So the more popular a result was, the higher it appeared in the rankings.
Level of Commitment
Starting a business, of course, takes enormous amounts of sacrifice and hard work, and no type of business is more so than a startup.
"I didn't realize I would spend almost every waking moment either working or thinking about our startup. You enter a whole different way of life when it's your company vs. working for someone else's company."
-Paul Graham
This ambition is often infectious to other staff members, leading to a more energized team with a startup's lofty aspirations and innovative methods.
Strong incentives
Many startups struggle with funding at early stages, meaning they cannot offer the most significant salaries.
However, this is often offset by the offer of stocks in the companies, providing real monetary gain in the future, provided the company succeeds. A fantastic example is Microsoft's case, which did it on a big scale. William Gates allowed many employees to buy stock for $1 a share. When the company went public, it was $25.75 a share. A year later, it was up to $90, sending out the first wave of the so-called 'Microsoft Millionaires." According to the New York Times.
Flexibility
Due to their nature, startups can be flexible and even change drastically before landing on the correct business model. This is possible because they are young and therefore aren't set in their ways the way older companies can be, which serves them well.
A Talented Team
Having a good idea is one thing. Having a team with the talent to pull it off is another. Therefore, many startups focus on attracting talented, often young people to be part of their teams.
A talented team also helps the company grow in directions it perhaps wouldn't otherwise due to the similarly ambitious nature of all the team members.
What sort of issues can startups face?
Strong Competition
No one doubts the intensity of the corporate world, with competition being one of its most significant aspects. In addition, hundreds of thousands of founders are in the startup world, making it a tense battle for attention, customers, and investors.
Startups need to be hungry to succeed and willing to put the fight in amongst the clusters of ever-challenging and expanding businesses.
Partnership Decision Making
Partnering tends to be a great deal in the world of startups, and it can be hugely positive for both sides. However, founders must consider various factors before agreeing with another business in the same ecosystem.
They must be sure of the company's positive reputation and how it will benefit them in the long run.
Managing Finances
Startups need to be especially careful with finances. They must be sure they do not overspend when a large influx comes in, as it may leave them short in the long run.
As startups rely on fundraising, it can be hard when dealing with funding rounds instead of a steady income of cash month by month. Therefore, when you get a significant sum, it is essential to set aside money to cover the business's basic expenses, such as salaries.
Cyber Security
Hackers are everywhere nowadays and will try to take advantage of any cracks in a startup's system.
As the rate of cyber crimes increases drastically, startups that are active online do face security threats. Be it unauthorized access to startups' sensitive information, employee records, bank account information, or any other related information deemed necessary for a tech startup's survival.
Companies can use a VPN (Virtual Private Network) to combat this. This will keep your and your customer's information safe and secure. We would recommend NordVPN.
Gaining Customer Trust
Winning a customer's trust and loyalty is one of the most critical challenges businesses in general – and startups – face today. With a loyal base of customers, startups can scale up and progress toward more significant success.
Startups must focus on a customer-centric philosophy. They should be willing to take on customer feedback and implement it to create a better product. You can request reviews post-purchase via email or open a customer service portal.
Managing Your Time
As the founder, you will inevitably be dragged in many different directions, especially at the beginning. In addition, every department will inevitably have questions as they settle into their new roles.
It is of utmost importance to manage your time well to complete all your tasks while still being available to those around you. A great idea to combat this would be having office-wide set hours of 'deep work; this means no one contacts each other in that time but instead allows each other to focus on their tasks entirely.
As you can see, there are several characteristics that both make or break a startup. From the critical funding to securing that talented team, every stage of being a startup has its excitement. So whether you are an experienced founder, investor, or someone looking to enter the field, we hope you found this piece informative.
This is where Angels Partner steps in, helping investors in their search for ambitious and likely to succeed startups.
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