What is a Startup? – Characteristics, Disadvantages, and more
A startup is an emerging digital company that has great growth potential. In other words, what differentiates a newly created company from a startup is that the latter are focused on exponential growth. While a typical company may have an ambitious goal of growing 10% per year, a startup usually aims to multiply its business three and five times a year.
At a sectoral level, although the term startup can refer to companies in any field, it is normally used for those that have a strong technological component and are related to the world of the Internet and ICTs.
We could say that all the big technology companies like Google, Apple, Facebook and Amazon have had to go through being startups in the initial moments of their path. Once they found the product-market-fit and had grown large enough, they became large companies focused on optimizing their operations.
The Goal of Startups
Though it may seem like common logic, one component differentiating a great startup from the rest is solving a big problem simply and effectively. It seems obvious, right? Who would build a company that didn’t solve a problem?
Well, the data tells us the opposite. Six out of ten startups that close does so because they have created products and services that did not fit in the market. In other words, potential customers did not buy their products because they did not solve a need.
Characteristics of a Startup
To be considered as a startup, they must meet the following characteristics:
A company of this type needs to have differentiating competence to obtain a competitive advantage. Innovation can be present in its products or the business model associated with the company.
A startup is a new company that is still in the early stages of brand management, sales, and employee recruitment. This concept is usually assigned only to companies that have been in the market for less than three years. However, this is not true. A company can be seven years old and still be a startup.
A startup is a company whose goal is to grow and expand rapidly, sometimes reaching drastic proportions. It is one of the points that distinguish a startup from a small business.
Since they are often based on innovation, these businesses are considered risky investments with a high failure rate probability.
A startup is very dynamic and ready to adapt to adversities that may arise. Due to the need to validate their business idea, these companies must adapt their product to customer requirements.
Solve a Problem
This type of company focuses on solving any existing problem in the market. You must make a difference in the market and people’s lives through your product or service.
A startup is a company that is constantly searching for a scalable and repeatable business model, that is, one that can grow without the need to increase human or financial resources.
These businesses are usually made up of very few people. It is quite common for there to be less than a hundred.
Disadvantages of a Startup
That said, some of the biggest challenges startups face are:
Competition poses one of the biggest challenges to the survival of startups. And if you’re starting an online business, the competition gets tougher.
Startups tend to run into challenges when they set unrealistic expectations. Success is short-lived, and expectations never end.
Hiring the Right Candidates
A team comprises people with similar skills and an identical approach. To develop a successful team culture, organizations in general and startups must hire the right candidates.
Money creates money. Remember the fact that when income increases, so do expenses. One of the biggest challenges startups face today is financial management.
Surviving challenges in this digital age requires small startups, especially those operating online, to be super elegant in countering cybersecurity threats. Hackers are everywhere and will take advantage of any loophole within the systems installed within a company.
Earning the Trust of Customers
Earning a customer’s trust is one of the biggest challenges businesses face. Startups can scale towards excellence with a highly satisfied and loyal customer base.
One of the reasons startups are widely known is the news of the high investment rounds that they collect to continue carrying out their activity.
Famous names like WeWork ($22.5 billion), Airbnb ($4.4 billion) and SpaceX ($3.2 billion) top the charts in America, the pinnacle of startups.
It must be noted that the huge popularity of startups does not use traditional sources of financing such as lines of credit or bank loans in the first years of their lives. The two main sources of income at the beginning are capital contributed by the founders and equity funding (giving shares or shares of your company to an investor in exchange for money). We find business angels and venture capital funds among the main equity-funding investors.
Also Read: How Do Chatbots Work? – Functions, And More