Many people are unaware of what a startup company is or what makes a company a startup. While startups are often associated with newer businesses, that’s not always the case. Not every new company is a startup; even some older companies continue to be startups years after they hit the marketplace. So, what is a startup company, and how do they differ from a big company?
In short, startups have fewer than 30 employees and receive initial financing through loans, bootstrapping, or outside investors. It's up to the founders and cofounders to begin their corporation as a startup. As a startup, they can be their own boss, have a flexible schedule, and make a positive impact with their innovative ideas.
Still, there's much more to startups than their size and revenue stream.
What Is a Startup?
Startups are small, often new, companies founded by one or more entrepreneurs introducing an in-demand product or service to the marketplace. Startups often have limited initial revenue and look to fulfill their capital needs from outside investors. Many startups receive funding from family and friends, loans and grants, venture capitalists, or through crowdfunding platforms such as Indiegogo and SeedInvest.
For founders and cofounders, startups are a way for them to be their own boss while marketing their own innovative ideas. It's a popular route for individuals who enjoy the flexibility and working at their own pace. This is not to say that they aren’t motivated and driven — perhaps they are more so. For employees who join startups, it can be a great way to get established in a new company or make a career change. Employees can expand their knowledge base, be part of family-like work culture, and receive great benefits and a good work-life balance.
Startups tend to fall into one of five categories:
- Buyable startups: Created from scratch by small teams with the idea of selling the company to a bigger corporation in the future
- Offshoot startups: Get their start from a parent company
- Scalable startups: Start with the goal of eventually scaling up by raising capital from outside investors
- Small business startups: Solo businesses made up of small teams that grow at their own pace and are sometimes happy staying startups
- Social startups: Startups tied to charities or nonprofits that get funding through grants and donors
Some startups, called lean startups, follow the lean methodology and aim to get products or services into the consumer's hands as quickly and effectively as possible.
Even if you’re unfamiliar with the term startup company, chances are you’ve heard of some. There are many success stories of small startups blossoming into well-known companies. Airbnb, Uber, WhatsApp, and Instagram began as startups before becoming well-known corporations.
What Is a Unicorn Startup Company?
The term unicorn startup company is common in the venture capital trade and refers to a private startup valued at $1 billion or more. Unicorn startups are rare, with a little more than 1,000 companies worldwide. They have new and original ideas, a clear growth plan, and a good business structure. Private investors and venture capitalists usually fund unicorn startups. Some unicorn startups choose to remain private and keep control of their company, but many choose to go public to achieve capital and growth.
Unicorn startups are less risky than other startups. They already have a decent value, have less need for investment, and are often considered more credible. They also have a better path for growth, and they can scale up faster than a typical startup. Instacart and Robinhood are both examples of unicorn startup companies.
What Is a Startup Tech Company?
Tech startups aim to bring innovative technology products and services to market. They're often led by entrepreneurs who recognize and identify problems in the tech world that others overlook and know how to solve them. Tech startups can start small and find support through government grants and other investors before expanding their platform to become a well-known corporations. Examples of tech startup companies include Google, Alibaba, and Amazon.
Tech startups are popular because of the digital solutions they can offer everyday people. The internet is a prominent part of many people's lives, and with worldwide access, tech startups are scalable and can reach large consumer bases. Silicon Valley is a prominent destination for many startups, and several companies have succeeded. It is home to many major technology corporations — Apple, Adobe, and Google — and is considered one of the wealthiest places in the world. Choosing to start a business in Silicon Valley has its advantages, such as:
- A well-established business infrastructure
- An ever-growing marketplace full of bustling talent
- A first-rate resource pool
Startup vs. Big Company
Startups are different from big companies. Bigger corporations may have hundreds or thousands of employees, offices, and branches all over the country and world. Startups usually have one or two offices and 30 or fewer employees. Other differences between a startup and a big company include the following:
- Culture: Startup companies have fewer people to manage, so fostering a close-knit working relationship with employees and colleagues is typically easier. The culture is often more relaxed than bigger corporations and encourages social networking. Bigger, fast-paced corporations offer fewer opportunities for employees to become familiar with one another.
- Flexibility: Bigger corporations run on structure and set schedules for their employees. This can include working at a set location from 9 a.m. to 5 p.m. Startups tend to be more flexible regarding where and when people work, allowing for a better work-life balance.
- Learning experience: Startups have smaller teams. Many employees find themselves working in areas that they might not be familiar with. But this allows — or requires — employees to grow their skillset. Employees in bigger corporations usually have focused responsibilities with less emphasis on expanding into other areas.
- Salary and benefits: Startups have limited funds, so their wages and benefits may be less than a bigger corporation can offer.
How to Value a Startup Company
Valuation is always challenging for any corporation but presents an even tricker challenge for startup companies. Startup companies often have little to no revenue and an uncertain future, making them a risky venture. But it's essential to determine a company's worth to gain capital and investors.
To do so, consider the following:
- Traction: Investors want to know that a company has good traction among users, marketing, and growth. They need an established customer base, an effective marketing strategy, and a clear vision of growth.
- Founding team: A founding team with a proven track record of experience and diverse skills shows investors the company has the potential for success.
- Prototypes: Working models of a product or service allows investors to see a company's ideas and how successful the product can be.
- Supply and demand: Supply and demand are always critical in business. Without proper demand, a product or service may not find success. A service or product that is innovative and attractive to the market can increase its value.
- Industries and trends: Industry matters. Technology industries are more attractive and workable because we live in a digital age; think artificial intelligence, internet security, and mobile gaming.
- Margins: Low-profit margins won't be enough to attract investors. Your company will have more value if your product or service brings high margins.
When Is a Company no Longer a Startup?
There are a few indicators that a company has graduated from startup to enterprise. If a company that began as a startup has built up revenue to over $50 million and has surpassed 100 employees, it is no longer a startup. Also, if a company’s value is $500 million or more or it has bought out other companies, they are no longer considered a startup.
How to Hire for a Startup Company
Regardless of the startup type, all startups have one thing in common: they need software developers. Finding the right talent for the job can be challenging and time-consuming, especially when starting.
Fortunately, you don't have to do it alone. With Revelo's talent marketplace, entrepreneurs and businesses can find and hire talented developers to meet their needs. Revelo makes the process simple — we'll provide you with a list of vetted talent. Pick your ideal developers and leave the rest of the hiring process to us. While we work out the nitty-gritty details, you can focus on growing your business.
Contact Revelo, and let us help you build your tech team and business more quickly and smoothly.