A decade ago, if you were talking about startups, you might have been required to explain what it was. But the same is not true anymore. So much so, that anyone and everyone starting even a business claims to be starting a startup!
How is a startup different from a business? Is it just got to do with the age of the company?
All startups are businesses; but all businesses are not startups.
Startups are businesses that have an ability to grow rapidly and acquire a lot of customers in a short period of time. This fact alone makes them an interesting investment case.
A startup is a business which fundamentally possesses an asymmetry between manpower and growth. In other words, growing this type of business does not necessarily mean recruitment of people in line with the scale of the business.
For example, if you were starting a postal business. When you start with one country, you would require a certain workforce to carry out your business. If you were to expand to another country, you would have to add just as many people to the organization if the country is just as large. Instead, if you were to start an e-mail service; for all practical purposes you could take your business global without even necessarily having an office in another country.
In the example mentioned above, we leverage the power of the internet to create the asymmetry. Traditionally, courier companies, which are similar to the postal business I described, tended to adopt a franchisee model and put part of the risk on the shoulders of the franchisee.
Anyone who assumes a risk and manages an enterprise is an entrepreneur; by that definition even the guy running a small grocery shop is an entrepreneur. Fundamentally, the entrepreneurial goals of the grocery shop owner is to take care of his/her family. A startup founder by comparison wants to dominate the market and acquire a considerable market share.
Those are their respective entrepreneurial goals and neither is wrong, it is just an intensely personal choice that each has made.
Startups generally have extremely ambitious founders who wish to grow the business fast and achieve a formidable market position.
Technology as a means of achieving scale
Technology is the only means by which such rapid scaling is achievable. One of the biggest reasons, a large number of startups have been confined to the domains of Internet and software. With the growth of Amazon and other such platforms it has also become possible now to rapidly scale distribution of hardware across the world and hence we are starting to see the emergence of hardware startups that have been able to scale just as fast across the world.
If a company can start out from zero and get to a point where it is either competing or disrupting an industry leader in the space of a decade, that is precisely the sort of company that investors wish to invest in, because – growth.
If you are starting a startup, the first question you need to ask yourself is does the asymmetry really exist? The next questions that you need to ask is if you wish to scale this business rapidly?
If the answer to either of these questions is ‘no’ you need be aware that, you are embarking on a business which might be difficult to fund. Even if you do get funded, there is going to be much suffering to follow, because the interest of the investor and the ability of the business/entrepreneur are not aligned.
A business becomes a startup due to the entrepreneurial goal, as well as the business model and market being pursued. Unless all of these things scream ‘scale’, the business is not a startup.