What’s in a definition?

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What’s in a definition?

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The term ‘startup’ is a confusing one. Hundreds of new business ventures are introduced into the market every year, selling similar types of products, run by a few people who have invested in the ventures, and with similar market strategies. There are also businesses that have been in the market for years. Yet, some are labelled as startups, while others are not. For instance, Sasto Deal, which just won the ICT Startup Awards this year, has been an ecommerce business for almost five years. OnlineShop, on the other hand, is a recent venture for selling electronic products online; however, it is not deemed a startup. Same goes with every new small café with new ideas or fashion stores with new designs that produce and sell on their own. Only some are associated with the term ‘startup’. This can be a really confusing situation because it tends to make it difficult to distinguish a startup from a small/medium enterprise. There must be some significant differences between the two categories. Here are some criteria we can use to figure out how to differentiate between the two.

Innovation

Innovation is an important element in a startup. “A startup is a company working to solve a problem where the solution is not obvious,” states Neil Blumenthal, cofounder and co-CEO of Warby Parker, in a Forbes magazine article ‘What is a Startup?’ by Natalie Robehmed. According to her definition, a startup seeks to solve problems that are yet to be solved in a novel way. “Startups are about entrepreneurial new businesses that have just started,” says Narottam Aryal, Principal/Executive Director at King’s College. “And entrepreneurship is all about finding new and innovative solutions.”

A startup is a company working to solve a problem where the solution is not obvious.

This is not the case with small or medium enterprises. Enterprises that are not considered startups are only copies of other already-existing enterprises in a given market. A new clothing shop that imports clothes from Bangkok and sells to the general public or a new map shop in Thamel qualify more as small or medium enterprises than a startup, unless they are offering something drastically new. But it also means that if there is already something in the international market and you emulate that business venture in the context of the Nepali market to solve a problem, it could qualify as a startup. For instance, there is a renowned company called Yelp that helps people find restaurants online in the international market. Yellow Nepal (which was also a winner of the ICT Startup Awards) borrowed the same idea to help people locate restaurants online in Nepal. Yellow Nepal is considered a startup since it is the first venture of its kind in this country.

 

Experimentation

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Startups are always experimenting. They do not have a fixed business model in place, so are in constant search for a repeatable and scalable business model. Pivoting becomes vital in startups when things fail. If you have watched the American television series Silicon Valley, you may have noticed how Pied Piper pivoted from developing a music app to a box that holds data, software or anything that goes in a hard drive, to a video-streaming service using its revolutionary compression algorithm. “Trying, changing and experimenting are always associated with startups and entrepreneurship,” says Aryal.

“Trying, changing and experimenting are always associated with startups and entrepreneurship.”

Small businesses already have a business model in place that works. The only thing that remains is to implement the business model. “There is an experimental approach in startups, while in businesses, there is a standard procedure,” says Abhisekh Maskey, interim CEO of e-Beema.

 

Risk

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Startups are riskier ventures. “Think of a startup as a new formula that a chemist grows in his lab,” says Balaji Viswanathan, VP of Products at Invento. “It requires a lot of experimentation and has a high chance of failure.” This is because there is a higher level of uncertainty involved with startups. When entrepreneurs, for example, search for the right business model, they have to invest a lot of time and energy to find the one that will work for them.

“Think of a startup as a new formula that a chemist grows in his lab,” says Balaji Viswanathan, VP of Products at Invento. “It requires a lot of experimentation and has a high chance of failure.”

On the other hand, small businesses already have other numerous businesses who have been doing well in the market to study from. They can draw ideas from standard business models that have worked in the industry. This is not to imply that there are no risks in small businesses, but the risks that are associated with these ventures are much lower in magnitude. In case of small business ventures, you only need a little bit of extra sweat and sacrifice to experiment until you find the right model.

 

Growth and Profit

(Source: entrepreneur.com)

Startups are generally designed to grow quickly and to disrupt the market. The aspiration is to become as big as it can; so the focus is on growing as fast as it can. However, small businesses primarily concern themselves with making profit, and then focus on growing the business. This is why small businesses tend to create revenue from day one, while it takes time for startups to start generating revenue.

Startups have high potential to scale up. For instance, the rate at which a coffee shop can grow is not even comparable to the rate at which a startup service like Uber has the potential to grow. “Growth is why VCs want to invest in startups: not just because the returns are high but also because generating returns from capital gains is easier to manage than generating returns from dividends,” writes Paul Graham, co-founder of Y-Combinator, in his article ‘Startup = Growth’, which can be found on his website (www.paulgraham.com).

However, startups do not remain at the startup stage forever. Once they find the right business model and secure financing, they find a standard business operation procedure. This is when they also turn into small or medium businesses, and at times into large companies. “You could consider all these labels as the definitions for the various stages of business,” says Aryal.

* First published in M&SVMAG  

Comments

  • Guest
    Rajesh Kumar sah Thursday, 06 April 2017

    For me startup means an early state of big company. What differanciates between startup and a small scale business is , small business they are contnded with there success and startup team knows there is alot to do and achieve. Startup knows they have just scored 9/10 in first chapter. Still the book is left.

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