Startup or “New business attempt”: Their 6 major differences
– “What do you do?”
– “I am the founder of a startup”
– “How would you define it?”
– “It’s great, people say that we will also get investors to fund our ideas…”
– “…how would you define your start up?”
– “It’s something new that I start”
– “But why is it a startup and not a “new business attempt”?
– “Because all new businesses are startups, I heard it in 5 different seminars I attended, plus experts say that it is very good and very cool to create a startup”
– “If “experts” say, who cares about the truth, correct. Ok, what exactly is your innovation? What have you started?”
– “A café”
– “And what is new in this café?”
– “New décor, new chairs, tables, everything is new”
– “And why an investor would invest in your café?”
– “Because we are doing great job, we smile a lot and we will have an excellent development plan, I have a consultant who told me that we can transform this project into millions, in less than 3 years’ time, like many other startups have achieved already”
– “How much do you pay him?”
– “10.000 Euro”
– “Good, he needs another 99 for his first million”
– “If he will make 1 million, what about me?”
– “You will have a consultant who is millionaire, what more do you want?”
Startups are different ventures
Thousands of people nowadays are invited to create their own “startup”, with the promise of getting rich quite fast. Well… this is fake, there is no easy money without hard work. While the real experts inform their potential clients about the truth, there are already hundreds of “experts” who are ready to tell you anything, just so as to flatter you enough and make you open your wallet for them. Add the part of the journalists who confuse new business attempts with startups plus the exposure you can get by entering in the “startup world” and you have a very nice misunderstanding created.
The reality is different. So, let’s define what a startup is. All the rest are Business Attempts (later you will understand why we split them):
1. Startup means innovation. No innovation = no startup, but a normal business attempt
Startups are defined by innovation. If a new business attempt is not innovative, then this is not a startup. By founding a startup, you are here to tell us “how you can do something we already do, at a lower cost / different way / more efficiently / transform it to something new” or “show us something we need and we did not know it so far”.
A new company of cosmetics (whose owner is using special ingredients etc) is not a startup, but a new business venture. A startup would be “a new company of cosmetics that created an app, you send a photo of your face and they automatically prepare customized cosmetics based on your own unique characteristics”.
Ilfov county in Bucharest recently financed 42 “startups” with 25.000 Euro each, but from the categories of activities mentioned in the announcement most of them are not innovative (architectural office, e-shop of organic products etc.). Thus they financed 42 new business ventures, out of which probably few startups too.
(There is nothing wrong about it, we just need to know the truth and what to expect by these companies)
2. Startup means that you have something that the others cannot easily copy
If you have a wonderful idea that can be copied in seconds / days, then your business is not a startup.
Café is a standard business venture for someone to attempt. A café with trains bringing you the order to your table is something new, but still not a startup, as many others can attempt it. (This does not mean that it is not a good business idea, I actually love it). Of course a company can be profitable without being a startup, you just need to realize what exactly you are doing.
3. Startup means potential to (quickly) scale. No scale = no startup
All these investors and venture capitals out there are searching for ideas that can quickly scale, so as to eventually grow in the country and then in the world. This is why most of the successful startups are related to IT, as it is the easiest sector for new ideas to spread around the planet.
Any business in which the competitive advantage cannot be repeated (we need the same owner / employees etc. so as to work) is a successful venture, but not a startup.
4. Startup does not care about profits, only about market share
Startups need to grab market share as quickly as possible and they usually reinvest all the profits towards this direction or develop on losses. Amazon remains on heavy losses or very small profits since its creation. Jet, its latest rival in the US, started by raising 1 billion dollars, so as to be able to compete. Most of startups become successful, create a large basis of clients / users and then they are sold to a bigger company, or they create / change their revenue model so as to become normal companies.
5. Startup means “incredibly hard work for 3 – 5 years”
Startups run against the clock. Sometimes different people around the world have the same idea, but only the one who finalizes it first and pitches it to the market is the winner. The company’s development potential is usually evaporated in 3 – 5 years. So anyone involved in startups (especially the successful ones) has to work really hard so as to catch up with the urgent requirements of the project.
6. Startups are funded differently than normal companies
A. While a new business venture goes to the bank, accesses EU / National grants or reinvests its profits, startups search for private investors, business angels etc. “So what?” you might say. Well, the difference is huge. A bank has totally different criteria than an investor. If you create a startup, you should have to adjust to what the investors want (big market share and then profits by exiting in the shortest possible time), while a normal company has to be ready for the bank’s approach (security, guarantees, small margin, rapid growth scares bankers)
B. The angel investors in Romania are not so many (Peter Barta, a top expert with proved track record, considers them less than 100, out of which only half are active), so don’t expect a queue of people at your door so as to fund your idea.
C. The option of bootstrapping for startups is not always available, as it needs strong liquidities and it is not always the case. On the contrary, many new businesses rely on bootstrapping. Startups may also search for crowdfunding, but in countries like Romania this is more like something “good to know that exists in other places of the world”, than a tangible option for you.
Think before you choose
There are many differences between a normal business attempt and a startup. Startup is not a normal company, it might be in the future. While a new business attempt is a normal company from day 1. Most people seem to be confused between these 2 options when they choose their next entrepreneurial step. Even more people create a normal company (which is amazing) having the impression that they created a startup.
It is vital for you to be aware of what you create, so as to know how you should build your business model. You need to decide upon which strategy to follow so as to reach your expectations. This will save you money, time and energy. And you will need all of them as you enter in the business world…
What is your opinion?
On Monday 05.10: Startup or “New business attempt”: What is suitable for you
Bogdan Livinti Nov 21, 2015
You summed so well what a startup is in the number three point. As Paul Graham’s said” A startup is a company designed to grow fast. Being newly founded doesn’t in itself make a company a startup. Nor it is necessary for a startup to work on technology, or take venture funding, or have some sort of exit. The only essential thing is growth. Everything else we associate with startups follows growth.”
It’s kind of a race, to get the distribution faster than the incumbent gets innovation:)