What is a startup?

Today, we hear the word startup being thrown around in the business world. Literally, a startup should mean an emerging business. So, you’ll expect small businesses to be startups. But you’ll be wrong. Just a little bit though.

Let’s delve into this topic and get to understand what startups really mean.

What is the definition of a startup?

Startups are defined based on their ages and characteristics. Age, because they are usually new and can still be referred to as startups even when they’ve been in business for at most 5 years. In terms of characteristics, startups are built on global ideas such that they have a global reach within a short period of time.

In other words, startups are usually built on an existing product, concept, or idea, for which the founders find the right market and continue to improve in quick succession.

This is why most startups are tech-based companies.

A company or business startup can thus simply be defined as an emerging business within the first 5 years of its creation, which uses technology and new innovative ideas of its founders to expand quickly in a fast-paced environment and have a global reach.

What differentiates a startup from a small company or business?

While small businesses are more localized and may or may not grow bigger over time, startups are built on global ideas and tend to grow fast and rapidly.

In fact, some startups, called unicorns, have seed funding of at least a billion dollars! What this means is that they can do so much within a very short period.

Also, while a small business would most likely duplicate an existing business idea with a target audience or market, a startup comes with a new concept that will definitely change the entire global scene.

As a matter of fact, the UK government would issue a startup visa to anyone that would like to open a startup company in the UK.

The only stipulation is that the business idea is innovative and is not at all a look-alike of any existing company present in the UK market!

How to start a startup company?

1. Have a great idea. Before embarking on the road to starting a startup company, you must have developed a great idea that has a future. You can have a great idea but you must research different routes to developing that idea.
    
2. Determine how feasible the idea is by doing market research. How feasible your startup idea is determined when you do a market survey to have a feel of what your customers would be like. You can create a sample product that would not be too expensive to build and get customers’ feedback. This will enable you to know if you should proceed or not, and if you are proceeding, what to do to make your product better.
    
3. Create a business plan. Every startup needs funding and except if you have a deep pocket to fund yourself, you will need investors. To attract investors, you need to create a good viable business plan with strategic milestones and profit projections. This is because every investor needs to know that whatever he’s investing in would bring profit in the long run.
    
4. Obtain funding. Now that you have a business plan, you should look for means to fund your startup. The different ways by which startups obtain funding will be discussed in detail in the next section.
    
5. Establish a business location. If, for example, you plan to locate your business in London, you should look into siting your company in a central location and a place known for your type of business. A tech company in London would most likely be located in Tech City or Silicon Roundabout. There are other specific locations for other business types too. This will give your company a boost and a prestigious outlook for your potential clients.
    
6. Do all the legal and paperwork. Maybe you should consider doing this before seeking funding. This is because most investors and financial institutions will only provide loans or grants if they know their money is secured. To legally validate your startup company, you should consider incorporating with Companies House and registering for insurance too. While registering with Companies House means you have commenced business, it is possible to obtain a dormant status till you have the funds to begin operations.
    

How are startups funded?

As said earlier, there are several funding routes available to startups. Here is a list of some that you should consider for your startup company.

• Bootstrapping – the funders of a startup may choose to personally fund the company in the initial stages, hoping to grow based on the profits made by the company later on.
   
• Crowdfunding – this can be used by charities. The company reaches out to members of the public who make donations to fund different projects of the company.
   
• Seed funding or Angel Investors – these are individuals or groups of people who invest in startups. They in turn become shareholders and advisors who get to make decisions in the company’s legal processes and financing. These people can be family, friends, or outside investors. Seed funding can also come in the form of venture capital companies.
   
• Series A, B, and C funding rounds – this is a subset of seed funding and it comes from venture capital companies. The first series, Series A funding, is given to companies with great ideas and prospects for growth. Such companies may sometimes be worth up to £24 million. Series B funding is for already established startups who wish to take their business to the next level while series C is for companies that are well established and looking to start new product lines and expand their markets.
   
• IPOs – also known as Initial Public Offerings. When a startup chooses to use this method of funding, the company becomes a public limited company (PLC) and every investor becomes a shareholder, entitled to dividends monthly or yearly.

What are the advantages and disadvantages of starting or working for a startup company?

The idea that startups grow from days of humble beginnings of just mere great ideas to a point where they have a global reach and can begin offering IPOs is fascinating. However, only a fraction of startups become that successful.

Let’s take a brief look into the advantages and disadvantages of venturing into building a startup company.

Pros

• More opportunities to learn. With each new challenge comes the opportunity to learn and grow. This is why startups are known for their fast-paced environment. The ability to recognise talents and bring them together is also a characteristic of successful startups.
   
• Increased responsibility. Even without the required experience most big companies would require from their employees, startups encourage young innovators by giving them more responsibilities thereby increasing their capacities.
   
• Flexibility. The working environment in a startup is fluid and dynamic with fewer restrictions compared to larger established companies.
   
• Workplace benefits. As incentives, startups tend to put many benefits in place for their employees. This encourages them to give more to the growth of the company.
   
• Innovation is encouraged. Innovations build the capacity and financial worthiness of a startup. For this reason, a startup is a place to develop new and progressive ideas.
   
• Flexible hours. Many startups grow by assuring their workers of flexible hours such that they can even work remotely. This way, they can have the best minds from anywhere in the world working with them.

Cons

• Risk of failure. This is a risk every business faces and it is sad to say that most startups fail before they can grow bigger. It is important to know this before starting or working for one because if it fails, the founders and investors would have lost capital while employees have to seek employment elsewhere.
   
• Having to raise capital. Investors would most likely want to do business with startups that they deem worthy. Hence, it may be a little bit difficult to fine-tune the details to make your business idea attract the right investors.
   
• High stress. Starting or working in a startup can be stressful because everything moves at a fast pace. This could be unsuitable for people who like to do things more methodically.
   
• Competitive business environment. Just because your idea is innovative does not mean you are the only one that came up with it. This brings competition. The success of a startup thus depends on its methods and how effectively it can reach and make use of its customers.

Conclusion

Getting started with a startup business venture has prospects so far your ideas are innovative enough to attract the right audience and funding. Also, working for a startup may just be the right idea for you if you are bubbling with ideas and you need those to come to fruition.

This is because startups welcome innovative ideas from all quarters.