Home / Tech  / When is a start-up not a start-up?

When is a start-up not a start-up?

When it’s just a company.

Everything’s a start-up these days.

The new restaurant around the corner? A start-up.

A US$50 billion company with over 3,000 employees (not including the untold hundreds-of-thousands of ‘contractors’). A start-up.

The most profitable company in the world? A start-up.

We at Idealog are as guilty as anyone. We’ve called a boutique coconut yogurt company a start-up fourteen times. But if any company is a start-up, the term becomes useless, just another synonym to be used in PR releases and on the About pages of company websites.

I think it’s time we settled on a workable definition. So if someone describes a company as a start-up, there are some parameters around what they’re talking about. That’s how language works.

I think it’s time to draw a line in the sand. But where?

One of the most commonly cited definitions is from Steve Blank, who teaches entrepreneurship at Stanford University: “a temporary organization designed to search for a repeatable and scalable business model.”

Let’s break that down a little.

‘Search’ means that a start-up is a temporary stage of an organisation’s life cycle, but one that is tied to what the organisation is trying to do, rather than what size is it. A restaurant may be new, but (in 99.9% of cases) the business model is not. ‘Search’ also means that once a start-up has found its business model (and maybe even had it validated by the market), it is no longer a start-up.

‘Scalable’ and ‘repeatable’ means that the search is for a business model that can work the same way for enough potential customers to scale into a profitability.

And that’s why start-ups are ‘temporary’. They find their business model and become permanent organisations that execute their business model, or they go out of business. It’s boom or bust. Simple.

Can’t decide if a new company is a start-up or not? Try this simple chart:

Can’t decide whether a company with high revenues, a sizeable ‘team’ and a value in the hundreds-of-millions is still a start-up? TechCrunch’s AlexWhelm (let’s take the spaces out of all tech-related names) has devised a simple numeric rule he calls the 50, 100, 500 rule.

If a company has any of the following (in $USD), it is automatically no longer a start-up:

  • $50 million revenue run rate (forward 12 months)

  • 100 or more employees

  • a valuation of $500 million (on paper or otherwise)

So no, that cafe you’re planning is not a start-up. But neither is Uber.

Airbnb is not a start-up. And Apple is definitely not a start-up.

Sorry to be a stickler. Your cafe idea sounds cool though.

Review overview