I had the good fortune to talk to Yevgeniy Brikman, Co-founder of Gruntwork and author of the book, Hello Startup.
One of the questions I asked him is his definition of startup. Here is what he said:
What is a tech startup?
The prototypical startup is a week old company with two developers in a garage. But the word “startup” is sometimes also used to describe much bigger and older companies. For example, the Wall Street Journal uses “startup” to refer to:
- SnapChat: $10 billion valuation, 2 years old, 20+ employees.
- Uber: $42 billion valuation, 5 years old, 550+ employees.
- SpaceX: $4.8 billion valuation, 12 years old, 3,000+ employees.
So it doesn’t seem like a startup is defined by how much it’s worth (from $0 to $42 billion), how old it is (from 1 week old to 12 years old), or how many employees it has (from 3 to 3,000).
So what is a startup?
To answer this question, let’s look at a few definitions from well known entrepreneurs.
A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty. — Eric Ries, The Lean Startup”
Creating products and services makes sense, and startups definitely face lots of uncertainty, but so do most local restaurants, which face failure rates similar to most startups [Miller 2007]. You generally wouldn’t call the local pizzeria a startup, so we need more.
Let’s see what Paul Graham has to say:
”“A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it 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 from growth.
Paul Graham, Co-founder of Y Combinator [Graham 2012b]”
In addition to uncertainty, you now have another essential ingredient for a startup: massive growth.
The goal of a local pizzeria usually isn’t massive growth, but to get enough customers every night for the owner to make a reasonable income, so it’s not a startup. On the other hand, even though the food delivery company SpoonRocket has been profitable since 2013, it was designed for growth and continues to raise more money, spread to new cities, and get new customers. So SpoonRocket is a startup, but will it be a startup forever, or does it become an “established company” at some point?
To answer that question, let’s turn to Steve Blank and Bob Dorf:
A startup is a temporary organization designed to search for a repeatable and scalable business model. Within this definition, a startup can be a new venture or it can be a new division or business unit in an existing company.
Steve Blank and Bob Dorf, The Startup Owner’s Manual [Blank and Dorf 2012, xvii]
A startup has no idea what product will work in the market, so the company is primarily focused on experimentation and trial and error — on searching for a repeatable and scalable business model. In other words, the final ingredient of startups is that they run in search mode. Now that we have all the ingredients, let’s put them together.
A “tech startup” is an organization with the following characteristics:
- Product: technology.
- Environment: extremely uncertain.
- Goal: massive growth.
- Mode of operation: search