Am I a startup or just a small business?
I kicked off a few small enterprises in my time, defined by the usual entrepreneurial mix of success and failure. Oh, wait a minute, no one actually fails, do they? These are just ‘learnings’ on the ‘journey’. Such neat delusionary deflections from the fact that you were probably missing any of a multiple of experiences and skills to actually make things work.
Back in the day, I ran small businesses. They were small by any measure. A handful of staff, no money to spend and, occasionally, living from one client payment to the next. The one thing I wasn’t short of was technology, with the office boasting more Apple Macs than people. Some would term this exciting, adventurous and character-building. Some would call it a start-up.
These days, I engage with lots of people in start-ups. They look very much like the small businesses I ran, with many identical characteristics, including the excessive indulgence in Macs, but now with an overlay of personal devices. We also had personal devices, but they were not ones we necessarily talked about or applied to our business.
I therefore ponder why I ran small businesses and these people run startups. I struggle to identify the characteristic that defines the boundary between the two, if indeed there is one.
Desktop Google research suggests ‘start-up’ dates back to 1550, where it essentially equated to upstart. Even I know that is an unfortunate derivation, generally associated with a level of impudence and seldom reflecting favourably on the bestowed.
In a business sense, the Oxford English Dictionary attributes the first use of the term to a 1976 edition of Forbes, with a reference to start-up business appearing in Business Week in the following year. In both instances, they were linked to investment or business linked to data and electronics.*
So there’s the first clue as to why I operated a small business, while modern enterprises with a technology focus are referred to as start-ups. This despite my over-enthusiastic investment in technology. I can only dream of what might have been if I had described my small business as a start-up. I may be living disgracefully on the proceeds of the IPO.
The question is whether, if I opened a fruit and vegetable shop now, whether I would be entitled to call it a start-up, or if it would still be classified as a small business, notwithstanding its high-tech cash register dropping data directly into its backend accounting package? This is extremely opaque to me, made even muddier if I sold fruit baskets online.
It would certainly much cooler to refer to my shop as a start-up, a word that conjures up the perception of a path forward and limitless prospects for growth. Being a small business is constraining, a term that suggests a level of satisfaction that this is as good as it’s going to get.
In fact, would be so cool to refer to my new enterprise as a start-up that I’d want to keep using that term for as long as it was credible. But how long would I be cool enough to stave off being defined a pin-striped establishment type?
As it turns out, the end of start-up status is ill-defined and hotly debated.
First there is the 50-100-100 rule that proposes “a company is no longer a start-up if they have earned more than $50 million in revenue within 12 months, have more than 100 employees, or are worth more than $500 million”.^ On any of those criteria, I wouldn’t care what they called my business.
There are also models that suggest there is a time limit on start-up status of up to around three years. After that, and having failed to meet any of the 50-100-100 hurdles, I guess they’re teetering on the edge of ‘learnings-journey’ status with which I opened this article.
The differentiator I most subscribe to is an entry level business model with the potential for rapid scaleability through technologically enabled repeatability. For good measure, add that the most successful have proven to be unconstrained by geography. For me, this presents the best rationale for the term start-up to have grown out of technology hubs like Silicon Valley and the unlikely application of it to the fruit and vegetable shop, even with online basket ordering.**
Irrespective of what you call it, starting an enterprise is one of the most exciting things you can do. It means testing your values, experience and skills in the marketplace, giving people jobs, mentoring others to be their best and making a positive and enduring difference. And by the way … good luck with the IPO.
Photo by Somi Jaiswal on Unsplash
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* Some thinking on this from much more clever people at Harvard: https://www.thecrimson.com/article/2011/11/17/startup-language-idea/
^ University of Sydney take: https://www.sydney.edu.au/study/why-choose-sydney/student-life/student-news/2017/07/25/what-is-a-start-up-actually.html
** For a more in-depth discussion of this and the transition from start-up to scale-up, check out: https://blog.growthinstitute.com/scale-up-blueprint/startup-to-scaleup