The term "startup" was originally coined in the early tech revolution in 1970s, referring to a new breed of small companies with astonishing growth potential. However, startup became a popular term in the 1990s and early 2000s business boom with brands like Microsoft or Apple scaling up at a faster pace than ever seen before. Below is a great illustration on just how fast brands like Google or Amazon scaled up compared to their competitors.
Despite of the relatively clear etymology of the term, there has never been a real consensus on how to define a startup. The first startup definitions stem from the first Venture Capitalists' criteria to identify the companies with the best potential for the investor. Whereas now the search for the ultimate definition of "a good startup" is joined by accelerators, corporations and academia - all with their own viewpoints.
In this blog post we're first breaking down the most commonly held key characteristics of a startup. (This is the stuff you'll want to reference in your pitches and publications.) Second, we're revealing the very definition we use to decide who gets to join the Hub and who does not. So, if you are thinking of joining, scroll down here for the tick boxes.
Startups are not like any other small companies in one crucial aspect: it is not enough for a startup to stay stagnant and generate steady income. Instead startup founders and teams aim for one thing, and one thing only: growth.
A startup is by definition a company that is designed to grow. However, what growth is and how it looks like depends on the phase the startup is at in the Startup Financing Cycle. In the first phases startups often lose money while growing their customer base, team and/or valuation, whereas in the later stages after breaking even growing revenue is the key.
A typical growth journey for a startup includes 4 main steps:
Let's start with the obvious: you need a team to call your business "a startup". As Startup Commons put it quite beautifully, "Entrepreneur is an individual, startup is an entrepreneurial team." Moreover, according to the CB insights, the 3rd cited reason startups fail is that they did not hire right. You can start a business alone, but to grow you will need the right people on board - be them employees, freelancers or co-founders.
The true size of a startup team is a little more ambiguous: do you stop being a startup the moment your employee count exceeds 30? Or is 50 where to draw the line? To draw the line on 500, we've benchmarked Alex Wilhelm's famous calculations. He argues for the cap of 500 based on Crunchbase's publication from 2016 that most unicorns with $1 million to $2.5 billion valuations employ approximately 600 people. At the Hub some of the big players, yet still well below 500 employees, including for instance Labster (100+ hired),Naava (50+ hired) and Pleo (100+ hired).
Returning to the introduction of this blog post, the term startup itself was coined in the midst of end of century technological revolution. Today it is true that startups still tend to work with software. But more and more startup businesses also focus on solutions that have seemingly nothing or very little to do with technology.
These relatively "low-tech" startups are often next generation impact startups: for instance Planet Nusa that transforms fish nets into beautiful sportsware or Entis that introduced crickets into the Nordic food scene. Neither of these startups work directly in creating technological solutions - but definitely depend on newly emergent technologies to bring their concepts to life.
Therefore it can be said that startups do work with tech, even though the product might not be technical in itself.
The basic rule of thumb is: Startups find new, scalable solutions to known problems. Be it a completely new product, service in a new place, monetization in a new form, or delivery in a new way, innovation in one of its forms is the key to startup success. So far we've seen at the Hub for instance startups creating plastic-like packaging out of wood, adding sensors to gym equipment to track your progress or even brining the first generation of drone deliveries to Denmark. Does not get more innovative than that
At the Hub, we have our own criteria for screening the companies wanting to join the platform. This criteria is centered around 3 core themes: commitment, scalability & innovation
*This is the revised criteria updated 08/2019. . Exceptions to these guidelines can be made if other crucial conditions are met.
The company needs to exist as more than an idea, as a legally registered company. Therefore we expect the startups joining our platform to have:
The company needs to showcase ambitions and abilities for growth. Therefore we accept companies that are:
As established in the prior, startups are usually new in the market and make use of technology:
As established in this blog post, startup definitions tend to be subjective and relative by nature: There is no one, objective fit to define for all. It is, however, crucial for you and your startup to identify what is your innovative solution or your startup life cycle story and capitalize on it. There is a reason why pitch decks tend to have a format covering everything from the problem to the solution to the team composition - these topics are, after all, the things that help any investor to identify "a good startup".