What is the proper definition of a Startup? How is a Startup Defined?

According to a KPMG report, startups in India have grown 7X in the last decade. India is nurturing more than 50K startups, and it is the world's 3rd largest startup ecosystem. With the help of technology, even non-tech startups are now crossing the geographical barriers.

According to a recent NASSCOM survey, 70% of the startups were just three months old in May-2020. The current pandemic has created an opportunity for investors to get better merger & acquisition deals. Startups have always been lucrative for entrepreneurs and investors.

Every business has its lifecycle. After maturity, it starts declining. So once a category declines, it creates an opportunity for a new business category. A startup is responsible for tapping that emerging need and creating a new business category.

We may divide Startups based on the area in which it operates like lifestyle startup, IT startup, and social startup.

A startup is fascinating for creative minds and a change agent in the new era.

Let's define startup:

As per the dictionary meaning, the process or action of setting something in motion is called startup.

According to the Startup India initiative launched by the Government of India in 2015, an entity headquartered in India with an annual turnover of less than Rs. 100 Cr. has opened less than ten years ago will be considered as a startup.

A startup is an entity that explores, creates, and validates a scalable and profitable model.

Exploration
A startup that explores customer insights and makes the customer realise their latent needs. Exploration always invents a new product or process or a category. It uplifts the living standards by adding ease and convenience to customers’ life. Exploration focuses on customer needs, wants, and desires.
Creation
Creation is the execution of exploration, which largely focuses on existing solutions. By editing, altering, and changing it upgrades the current offerings in the new form. This may also result in a change in processes like packing, storing, and delivering. Sometimes it redefines the marketplace.
Validation
It works on the solution of some crucial bottlenecks and loopholes in the system. The initial phase is for making an error-free model. Startups are supposed to chase excellence at the initial level so that one may leverage the same model in the future at a larger scale.

In a holistic view, an entity shall have the following characteristics to qualify as an ideal startup:

1. Designed for Growth (Scalable)

There is always a difference between a small company and a startup. A small company is designed to operate at a lower scale and gradual growth over a period, whereas a startup may start with zero rankings but has plans for rapid growth in terms of customer base and revenue. A startup is designed to make losses at the initial stage, whereas a small company is focusing on profit from the very first day itself. Scalability is an intrinsic characteristic of a startup.

Post successful test markets, startups plan to enter the large market to gain higher momentum. Startups initially target the niche segment and penetrate the market one by one. Startups not only create and promote latent needs but also create a new product category. Sometimes the know-how of one product or one market gets extended to other products and markets. Technology makes it easier for startups to scale high easily and smoothly.

2. Satisfying Futuristic Need

A startup focuses on satisfying the futuristic need of the targeted segment. The condition is going to arise shortly and sustain for a long time in the future. New markets emerge due to socio-economical and lifestyle changes. Due to exposure to global living standards and the efforts of marketers, the customer realises the needs. Otherwise, it is latent.

A startup can not focus on the current needs, which are getting satisfied by the big giants of the industry for a long time. It can not be a me-too brand or a company in the market. It is sometimes challenging to change the habits which conventional business has created.

3. In the initial stage

Each business has its lifecycle, like an initial stage, growth stage, maturity stage, and decline stage. A startup chooses and selects the category which is at its initial or early growth stage. Technically an entity can be called a startup for the first ten years of its inception, but almost all the startups reach the scale which may not qualify them as a startup. Once the foundation is made, and it has cleared the ground test, the startup leverages its future potential and market itself.

4. Shoestring operation

A startup has limited resources at the inception stage. Getting optimum outcomes from the available resources is an initial goal for any startup. It extracts maximum output from the inputs available on hand. There is no room for wastage or misapplication. Startups work with tight deadlines and utilise every penny at its best to set the benchmark. This benchmark works as a model and prototype for future expansion. Every process is closely monitored to optimise and synergise the available resources. Here also technology plays a vital role in maximising the output of a startup by shoestring operation.

5. Sustainable

A startup is always built on business ideas that are universal in application and long-lasting. It has the differentiator to sustain the competition. Over some time, it also stays relevant to the market and its customers. A startup is not made to gain the benefit in the short run. It allows a business to run on losses till the time it does not reach the specified market coverage. At the ideation stage of a startup, sustainability is the first concern.

6. Kaizen

A startup is always seeking areas of improvement as it's an incubation of a large scale company. Learning from its own experience makes a startup error-free. It is built on the kaizen principle, which is a well-known Japanese traditional philosophy theory. It means continuous change for the betterment. A startup may choose to grow phase-wise so that it can learn from its mistake. Addressing the crucial business concerns and overcoming the loopholes can make the next phase easier and error-free. The larger the scale, difficult it is to correct, alter, and update its processes and functions. At the startup level, all-cause and effect experiments are feasible.

7. Investor-Friendly

A startup always has room for a new partner who is adding value to the business. It leverages the trust and credentials to build on a future stack for the company. At the initial stage, it allows angel investors to share the risk at the highest premium. In early-stage post-break-even points, it welcomes VCs and M&A to fuel growth for the next stage. Exceeding the second stage builds confidence in a startup and opens its door for IPO. Post this stage, startups accept secondary offerings and activate them in the public market. So each stage of a startup welcomes investors with open arms. More than ownership, scale, and uniqueness are the pride of a startup.

8. The solution of a known problem with technology (Tech Savvy)

A startup always utilises technology at its best, even for non-tech startups. It strives for a better solution to an existing problem with the help of technology. Along with new ways and means of resolution, technology adds up the convenience of execution and adaptation.

Technology-based startups tend to grow faster than non-tech startups due to ease of scalability. Efficiency and effectiveness are the outcomes of technology-based startups. Tech-based startups are adaptive and error-free with higher convenience.

9. Unconventional ways of doing conventional business (Innovative)

A startup brings innovative up-gradation to the conventional system. A startup turns the conventional business 360 degrees and offers the makeover. It changes business processes and results in better outcomes in terms of improved products and services for customers, along with a more robust bottom line for the stakeholders. Necessities are something that one can not live without. There would be the existence of conventional business dealing conventionally. These traditional businesses operate on a large scale because of their penetration. For startups, it is a very lucrative opportunity though it's challenging to crack.

So the proper definition of a startup includes every characteristic we discussed. If we put it all together:

"An investor-friendly entity at its initial stage, designed to grow with a kaizen focus on sustainable and shoestring operation, satisfying futuristic needs and resolving existing problems of a target audience with the help of innovative technology delivering unconventional business practices that result in better products, services, and profitability."

If we put it in simple words, a startup is a dream of open eyes, well planned, and nurtured, with passion and dedication.

Also read:

1) Startups in India: Growth & Other Factors to be Considered for a Startup
2) When does a Startup Stop being a Startup and Become a Normal Company?
3) What Are Some Good Startup Ideas?
4) Startup Ideas: How do you know if your Startup idea already exists?