The term ‘startup’ was coined in the late 1970’s and ever since it has always been in the limelight year after year. Startups are not the usual kind of business which you may find in your locality. They have a whole different functioning, operations, business models, and vision. It is therefore essential to understand ‘What is a Startup’ before even considering to jump in the startup ecosystem.
A startup is defined as an infant or new and unique business organisation which aims to resolve an existing societal problem through innovation and uniquely profitable business model. Startups are unlike full fledged companies with huge resource base and capital. Rather they have a very limited number of people with tight pockets unless they are successful in raising funds.
The Entrepreneur who starts a startup has to organize and build a committed team of core members and co-founders so that the startup could begin to function and can grow. It is important to find a great co-founder and a core team if you want to increase the cahnces of success of your startup.
To know more about this, read our post on ‘How to start your own Startup : The Startup Handbook’.
How do Startups work?
There are no hard and fast rules as to how a startup must or should function. Different startups work quite differently based on their goals, bonding between the core members, understanding, and the environment and work culture of the startup.
Startups usually lack any definite work culture because of being extremely new. However, the environment does play a crucial role. Great startups are known to have extremely positive and committed work environment with frequents parties and chill outs to shed the stress every once in a while.
The Functioning of startups can be described as follows:
1. Business Plan
All the startups start with a business plan because a plan is the starting point of any initiative and especially when the initiative is so risky and big. They plan out each and every thing well in advance.
2. Team Building
You can get big alone, you would always need talented and skilled people around you. The entrepreneur of a startup tries to bring the best men together to build a team with great skills and huge potentials so that they can succeed. If you are interested in knowing what else an entrepreneur does and how you can too become one, read our post on ‘How to become an Entrepreneur: The A to Z Guide‘.
3. Raising Funding
To operate all business requires capital and in case of startups this capital is acquired through securing funding from potential investors. Funding is a crucial step for any startup because most startups falter at this stage itself. Don’t wory read our post on ‘ The 100% Guaranteed way of Raising Funding for your Startup‘ .
Having done all this the last thing you would need to do would be to advertise and publicize your startup. Public attention and brand recognition is important for customer acquisition and have to get it right to win.
If you plan to start your own startup and are struck then do read our post on ‘How to start your own startup: The Startup Handbook‘ to successfully establish your new startup.
Features of Startup
1. Based on Innovation & Novelty
Startups are all about innovation and uniqueness. They start in the first place because they have something unique to offer which nobody is providing. They tend to resolve an existing problem or inefficiency through technology and innovation.
Most of the successful startups of the era focused on making life easier for all. For example- Google made it extremely easy to surf on the internet and find anything online, Amazon came up with the concept of online shopping of every kind of goods be it daily use stuff or professional equipment, and so did Facebook be connecting people around the globe.
So the mantra to learn here is that, every successful startup does one thing in common, innovate and ease.
2. Unique Business Model
Having a good business model for your business in general and startup in particular is of immense importance. What good is it if you are able to solve others problem but are not able to generate revenue from it?
Startups usually come up with very unique and one of their own kind of business models to fuel their capital needs. The key point here is that your business model must be such that you are able to generate enough revenue and even profits without adding burden on the customers pocket.
Today there are numerous business models available to take inspiration from for your own startup. This would help you to devise a unique business model for your startup.
3. Small Number of Employees
A startup generally has a very limited number of employees working. This is what makes it different from the full fledged organisations which have thousands of people working for them.
However, small number of people doesn’t mean less work. Instead, the startup comprises of the most efficient people in their respective domains so that resources could be saved afterall, resource management is important.
This is why building a good core team for your startup is important. You have to minimise cost and maximise your output in order to sustain.
4. Huge Initial Losses
A very common trait in almost every startup is the fact that they incur huge losses in the beginning. And when I say huge it really is massive. To give you an estimate most of the statups lose 70% of their revenue in the first five years. This is because of huge one time expenditure which are much more than regular costs.
Also the startup world is very competitive. With new and better startups coming every day, you have to spend blindly on branding and advertisements just to ensure your startup’s survival. So much so that in case of startups, 80% of expenditure is just on marketing.
Difference Between a Startup and a Small Business
Startups are more often then not confused with other types of businesses, particularly with small business. However, both of them are quite different and a detailed comparison would help you to clearly understand the two.
1. Create Vs Execute
The first and the major difference between a startup and a small business lies in what they do.
In case of a startup, the entrepreneur creates something new and unique in nature which does not existed before. This is done to help people with something new and more efficient. Startups seldom offer what already exist because its tough to find your place in an already competitive market. They therefore focus on innovation so that they could create an entirely new field and have monopoly and first mover advantage which eventually would help them to succeed.
Small business, on the other hand, focus on execution. They don’t create something entirely new. Instead they try to sell what already exists but in their locality and through innovative techniques. A small business, unlike a startup, provide existing services with a little tweak.
2. Fund Raising Vs Self Funding
The next major difference is the way both arrange funding for their functioning and for operating and expanding.
Startups usually raise funds from angel investors and venture capitalist. This so because the capital requirements of a startup is humongous and this could not financed by the entrepreneur himself in most of the cases.
However, the main source of funding in case of small business is the owner. Usually the owner himself brings the required capital from his personal saving to meet the funds requirement. This is because they usually don’t need much funds as the scale of operations is much lower.
3. Scale of Operations
Startups function on a much wider scale then small businesses. They usually operate on pan country level in their beginning with rapid expansion globally.
However, this is not true in case of small businesses. A small business functions in a locality or in very limited region. This is due to the lack f funds they have and the lack of professionals they hire.
This is arguably one of the most visible difference between startup and small business.
Startups are a very unique kind of organisation which rise and fall every now and then. There is no certainty in the startup world. But its really something worth trying if you have a great idea. Startups today are booming and would continue to grow because of the lucrative perks they bring. However, it is important to know every aspect of starting a startup before jumping in, because half knowledge is extremely harmful.