Let’s talk about Startup. Everyone knows what a Startup really is, right? Driven founders, small money and big dreams. What else? Let’s try to dive deeper into it.

First of all, we must clear a common misconception: a young company isn’t always a Startup.

• If you’re creating a new company to sell bolts and nuts, you’re probably not creating a Startup.
• If you are opening a new sushi restaurant in your town, that’s not a Startup.
• If you are creating an online reseller shop for shoes, that might not be a Startup.

Now let’s go straight to the question: what is really a Startup?
While the term “startup” is used a lot, its meaning changes depending on who you ask. To get a clearer idea, we can have a look at what Eric Ries, Startup guru, Co-Founder of IMVU (an online virtual world) and author of The Lean Startup book, and Steve Blank, Co-Founder of E.piphany (a company that developed customer relationship management software) and author of The Startup Owner’s Manual, have to say.

Let’s start with Eric Ries. In his book The Lean Startup, he states:

“A startup is a human institution designed to create something new under conditions of extreme uncertainty.”

Here we can already see the first difference between a Startup and a traditional company: uncertainty.
In a startup we don’t know who our customers will be, we don’t know for sure what we will sell them, or in more extreme cases, a market for our product may not even exist, we have to create it ourselves. At first, we only have hypotheses, then we have to test it. It’s like navigating through fog

This is very different from a company already established in the market: it has a defined customer base and understands their needs and how to offer value to increase profits.
For example, a company that produces bolts and nuts already knows what it will sell and to whom. Its business model is predictable, and uncertainty is minimal, so it cannot be considered a startup.

Now let’s have a look at Steve Blank’s definition:

“A startup is a temporary organization designed to search for a repeatable and scalable business model.”

Blank highlights another key aspect: the scalability.
A business model is scalable if it can grow very fast while keeping additional costs low. In other words, as the company gets more customers or users, the cost of serving each new one doesn’t increase at the same pace. This allows a startup to grow 10×, 100×, or even 1000× without having to scale staff, infrastructure, or production at the same rate.

A classic example is a software startup — It is no coincidence that many of the world’s largest companies sell software. It requires a significant initial investment to develop the product, but once it is ready, the cost of serving each new user is negligible. In other words, the same platform can serve thousands or millions of users without proportional cost increases, making the model highly scalable.

A new sushi restaurant, on the other hand, is not a startup for this following reason: in order to scale, we would need to open multiple locations, but each new branch would require repurchasing everything: kitchen equipment, tables and chairs, bar counters, cash register, display cases, dishes, and so on.
The cost of each new location would be very high, making the model poorly scalable.

And what about an online shoe reseller?

• It is scalable: whether we sell 10 pairs or a million, costs don’t change much.
• It is uncertain: we don’t know which models or brands will sell best, and we don’t yet know which market segment will buy the most.

So why isn’t it a startup?

Ries and Blank focus on uncertainty and scalability, but another important element in their definitions, not immediately obvious, is innovation.
It is perhaps the most important quality of a startup. Why? When you enter the market, you are playing in the big leagues, where everyone has more resources, experience, and knowledge than you.
It is nearly impossible to win by playing by their rules. But if you manage to change the rules of the game, you might have a chance.

Big companies have a main weakness: they are slow to move. Your strategy must be to outpace them by developing solutions that move faster, more efficiently, and truly new.

A traditional reseller does not introduce innovation – unless they use predictive software or advanced technologies – so it cannot be considered a startup.

From this characteristic, the other two follow naturally: innovation allows you to overcome competition and aim for a large market — the scalability — while accepting higher uncertainty, because your product is new and you don’t yet know how the market will respond.

And there we are, back to the definitions of Blank and Ries.

Author: Marco Carabelli