When is a startup no longer a startup?

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When is a startup no longer a startup?  Is a company looking to scale its business a small business operating at a loss, or a startup in search of growth?

It seems that there is no commonly accepted definition of the term “startup”, as evidenced by this FAQ from answers.onstartups.com.

For me, I prefer to think that a startup becomes a small business once it has evolved a business model, acquired a substantial number of customers, is at least somewhat dependent on the resultant revenue stream, and is feeling a need to scale.

Now why do we care about this terminology?   It’s because “startup” and “small business” evoke completely different images and expectations on the proper way to conduct business.  A startup’s charter is to experiment and learn until it finds something that works and has lasting value.  A small business must keep its existing business model going while investing in new innovations.  Naively applying startup thinking to a small business or vise versa could very well result in a suboptimial decision making process.

One place that really matters is the pivot. A startup, with a small number of customers, can rapidly iterate on learnings from the market, and pivot on product strategy, offerings, positioning / messaging, and go-to-market strategy without worrying about alienating a large customer base.  A small business, however, has amassed substantial numbers of customers that it cannot offend (having no alternative customer base to help maintain its revenue stream). Thus it must keep a certain level of staff for baseline development, sales and marketing and customer support activities, just to stay in business.

So the small business can still pivot, but the scope of change is more constrained. It can iterate on positioning / messaging and go-to-market strategy, but changes in product and service offerings must take on a smaller scope and/or a longer timeline.  Of course, ultimately whether a company can pivot and change course quickly depends on their cash situation… a small business with a large war chest can well out-pivot a startup with low cash reserves.

So is it good or bad to have made this transition?  I for one think it’s great news.  It means the company is one step closer to nirvana – becoming a successful business and bringing lasting value to customers.  It’s a great time to be with a company!

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