What’s a “startup” and why do I care?

You know when you have those really annoying arguments that turn into disputes about definitions of words? And they end up a tangled mess of pointlessness, and you just don’t want to be there any more?

Well, I’ve just realised that they’re much more important than I thought, but you have to think about them in terms of shared group culture. By which I mean, lack of shared group culture.

If I’m in the San Francisco Bay Area, and I say the word “startup” (as in a “business startup”), then most people will probably have a clear idea what I mean. And because I’ve read enough books and blogs, because that meaning has spread around the world’s Internet entrepreneurs, I’ll have pretty much the same meaning as them.

To give my readers who aren’t in this bubble a definition, this is how current valley beaux Eric Ries defines it:

A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.

Important about this is what it isn’t… If you’re Starbucks, you’ve already got tens of thousands of coffee shops, you’ve got mesh networks of computers crunching your loyalty schemes, and you’ve bought the best demographics that money can buy… Then opening a new shop is not a startup. Because you know the product, you know its market, you know how likely it is to succeed – you’re not even uncertain, never mind extremely uncertain.

Actually, anyone opening a coffee shop isn’t a startup. Yes, in everyday language, the person opening it will be “starting  a new business”. They’ll be working very hard, they’ll be risking their own money. They’ll be gambling that they can extend the coffee shop market a few blocks from where it was before, or that they can out execute other nearby coffee shops.
However, they’ll be doing something that many have done before. They can download a tested business plan, meet and chat to people who’ve done it before, and even hire them. They know how to execute well, because they’ve been a customer themselves in a coffee shop before, and they’ve worked in a coffee shop before.

Startups are about new products in new markets. Fundamentally it is about innovation. Does it have the possibility of changing the world?

You’ll notice that Eric’s definition didn’t say you have to be for profit, an organisation like mySociety is a startup. You don’t even have to be a new organisation, existing large companies can create groups within that are startups, but it is hard and rare (read the Innovator’s Dilemma if you care why).

But typically, startups tend to be new, for-profit businesses, like ScraperWiki that I run. Although that’s partly just because those kinds of startups are more visible.

So why do I care?

I think we’re in a lot of trouble at the moment, things are on edge. As a human race, we have to be innovative to get out of this. Not any old innovation will do (I’ve recently blogged about the kind of thing I think is most helpful).

But if people just carry on the same, setting up the same kinds of businesses, running their charities and governments in the same old ways, then we’re definitely screwed. So I’m glad that Eric is spreading the idea of how to create new, scalable, world-changing organisations, in clear and simple language (his book is a good place to start).

And I’m going to be using the word “startup” in the Silicon Valley sense. Tough.

4 thoughts on “What’s a “startup” and why do I care?

  1. Start-up is not an entity. Its a process.

    You are right in that sense that opening a new branch of chain is not a start-up.

    Although if that chain is a franchise, then there is some merit in defining it that way. The entrepreneurs is taking a large part of the risk but have purchased some market credibility in the branding.

    From my perspective there is a great deal of problem with ‘start-up’ has a catch-all phrase anyway. Its major problem with the way we do economic development.

    What is the difference between ‘starting-up’ and ‘started’ for instance?

    When I’m wearing my enterprise hat I would use a classification like Reynolds & Whites as described here by
    Joachim Wagner

    “The creation of a new venture is a process. Following Reynolds and White (1997, p. 6) and Reynolds (2000, p. 158ff.) this process, analogous to biological creation, can be considered to have four stages (conception, gestation, infancy, and adolescence), with three transitions. The first transition begins when one or more persons start to commit time and resources to founding a new firm. If they do so on their own, and if the new venture can be considered as
    an independent start-up, they a called nascent entrepreneurs. If they are sponsored by an
    existing business, they are considered nascent intrapreneurs. The second transition occurs when the gestation process is complete, and when the new venture either starts as an operating business, or when the nascent entrepreneurs abandon their effort and a stillborn happens. The third transition is the passage from infancy to adolescence – the fledgling new firm’s successful shift to an established new firm. ”
    http://ftp.iza.org/dp1293.pdf {p1)



  2. Thanks Garry for that link, interesting!

    I think by startup then, Eric and I mean organisation in the gestation phase.

    “a nascent entrepreneur is defined as a person who is now trying to start a new business, who expects to be the owner or part owner of the new firm, 2 who has been active in trying to start the new firm in the past 12 month, and whose start-up did not have a positive monthly cash flow that covers expenses and the owner-manager salaries for more than three month.”

    That can be a long phase. Is say, Twitter past it? Depends on details of the cashflow definition. I’d to be honest prefer a product/market fit style definition.

  3. Hopefully we’ll see more startups as time goes on. Not just are there more people, but more of them are able to support themselves without needing to follow a plan to be profitable straight away. With a bigger safety net, failing doesn’t hurt quite so bad.

    Random note: ScraperWiki seems to rely on JS. A notice to that effect – e.g. a big red/orange-background banner at the top of the page – would be a good idea. I spent a few seconds clicking the buttons on the “request data” page before realizing they weren’t going to do anything (compounded by the fact that the CSS hover did work).

  4. Yes, that’s true GreenReaper! However I suspect that as time passes, all the low-capital ones of a certain range of categories will get done, and it’ll be hard to compete any more.

    Then all the interesting things will require capital (either to build something software more complex to enter in a particular way, or to cover unfulfilled industries like cleantech)

    Thanks for bug report! Have filed it here for Zarino

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