What is a start up? Business Development Tips
photo credit here

These days, the word “start-up” gets tossed around so much that we’re starting to lose its meaning.  And the meaning matters. Consider this: a lot of creatures can be classified as baby animals. But when you want to learn about baby birds, it doesn’t make sense to spend time studying baby elephants.

But that’s what a lot of new businesses are doing these days.  As the definition gets muddy, new business owners risk wasting time studying and trying to mimic well-known startups – time that could be better spent studying other businesses instead.

Spell it however you want to:  start-upstartup, and start up are not synonyms for “new business.” Not every new business is a startup – or should be! A startup a very specific kind of new business with a very specific – and temporary – purpose.

Here’s the real definition, and what it means for you.

A startup is a temporary organization designed to search for a repeatable and scalable business model. 
(source here)

Let’s translate that into regular English: a start up is a special kind of new business that isn’t meant to stay the same forever because it doesn’t know how it’s going to sell or use it’s product to make money – so it’s busy doing small experiments to answer questions about its future.

photo credit here

A start up isn’t really “a business” yet. It’s the baby elephant of businesses. Baby elephants are huge — 250 lbs at birth – but they’re awfully dependent on the other elephants in their pack. They drink their mother’s milk for two to ten years. It’s takes an entire year for them to learn just how to control their trunks without tripping on them or smacking themselves in the face constantly. They need other elephants to teach them and guide them and protect from predators – because, despite their huge size, they’re incredibly vulnerable. A startup is like that. It still needs a lot of information and resources before it’s ready to stand on its own.  It’s vulnerable, unstable, and still trying to control its organization without tripping or smacking itself in the proverbial face.

Notice that first part of the real definition  – “a temporary organization.” That means that a startup is not meant to stay the same forever – or even for a few months.  It’s a company thats very purpose is to transform into something else. It’s a company in embryo — all the genes needed to build a company are there, but they haven’t quite figured out how that genetic code is going to play out.

The last part of the definition tells you why.  Looking for a business model means that they don’t have one yet. A startup is looking for a business model that is scalable. That means that it can grow – infinitely, if possible – by attracting an increasing number of repeat customers who each add profit to the business.  That’s what makes a start up different from another small business. A start up has an idea – a product, a service  – but they haven’t figured out the best way to build a business around that idea.  Start ups are still trying to answer at least two of these questions:
Who are our customers?
What do they need?
What do they want it?
What’s the best way to deliver it to them?
What’s the most profitable way to deliver it to them?
How do we get them to come back?
How do we make money off of this idea?
What do we need to make money? 
What partners, resources, and information do we need?
What question do we still have?
How can we make small bets to find answers to our questions?

Instead of just picking a business model and throwing everything they have into it, a start up founder experiments. They test. They research. They use small amounts of money to test theories before they put all of their time, resources, and money (or their investor’s money!) behind it.  A startup shouldn’t even do significant fundraising until it’s finished experimenting.

That’s what makes the difference between a start up and any other new business on the block. A new business is trying to sell a product or service and make money. They know who their customers are. They know what their prices, market, and structure will be. They aren’t trying to do anything new with their business model or pricing. But a start up is experimenting to find the best way to use their idea to make money. They’re in research and testing mode, not “grow as much as we can mode.” Start ups want to grow, but not yet. Not until they have more information. They know that if they grow too fast without that information, they won’t be stable and will risk catastrophic success.

A business has an idea, a product or service, and a business model for making money.
A start up has an idea, a lot of hypotheses, and is busy testing them on a small scale.

Once it has enough information, a start up will change its structure and launch as a business on a large scale.

Not every company needs to be a start up — or should be. Baby birds don’t need to spend years in the nest before they’re self-sufficient. And it would be ridiculous for them to waste that time when they could be out doing things for themselves.  If you are a specialist or expert, if you do something that other people do, but better/faster/cheaper – you’re probably not a startup because your business model is going to be pretty straight forward. You know that you’re going to provide a specific service or product in a specific way for a fee. You know that you may have to make changes as the market or economy changes, but the majority of what your business does to make money is clearly defined.  You’re not looking for a business model – you already have one. You don’t want to grow infinitely – you want to run your company yourself or hire employees to do what you do as you grow. If you’re a graphic designer, culinary artist, social media specialist, or other skilled specialist starting a business – and if your business is based around doing what other people have done before, but better – you don’t need to call yourself a startup. You have answers and direction that startups don’t have. A baby bird may be a lot smaller and weaker than baby elephant, but it’s self-sufficient and independent a whole lot faster.

The startup business structure is an efficient and powerful tool when you have a lot of a certain kind of question – but they’re inefficient and delay profits if you’ve already got a business model. Startups are like any tool – they’re appropriate for some jobs, but not for others. Success depends on using the right tool for the right job – regardless of what’s trendy or getting buzz right now.

A physicist by trade, author by choice, a born teacher, a retired veteran, and an adamant problem solver, Frank has helped the White House, federal agencies, military offices, historical museums, manufacturers, and over 250 technology startups get stuff done, communicate effectively, and find practical solutions that work for them. In his spare time, he makes sawdust and watches Godzilla movies.