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Startup

A startup is a small business founded by one or more individuals to develop new products or services. They’re often categorized as innovative or disruptive businesses.

What is a startup?

For many people, the definition of a startup involves venture capital firms, entrepreneurship, and Silicon Valley. A startup can also be a new business venture founded by one or more entrepreneurs with the idea of offering a new product or service, or offering a new and improved version of something that already exists.

Every startup begins with a degree of risk. A startup's business plan can be fluid or evolve routinely, depending on what a founder (or cofounders) want to do.

Startups may be funded by the founder's checking account or investments from family and friends in the early stages. They might turn to crowdfunding for their new business, if it has enough growth potential.

Startups may have a limited lifespan before being absorbed by a larger company, going out of business, or expanding to the point where they become profitable on their own.

While headlines are full of successful tech startups becoming established businesses, only a small number of them last. Of course, the ones that do can offer a considerable financial return for their founders and early investors.

Companies like Microsoft, Apple, Amazon, Google, LinkedIn, Airbnb, and Uber began as startups, each of them being considered a "disruptor" for the way they changed their industries and developed new ones.

For example, there were many Internet search engines before Google, yet it quickly dominated its field by offering better search results than its competitors.

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Key features of successful startups

Scalable

To succeed, a startup needs a business idea that's easily scalable to serve a larger audience and achieve its high growth potential. Someone offering home repairs isn't a scalable business, as it would be hard to rapidly expand to serve a large number of customers.

Internet startups and social media platforms, such as Twitter and Instagram, have a highly scalable business model as they each capitalized on the world's fascination with sharing content and served millions of users within a few years.

Self-efficiency

Startups often begin with one or two entrepreneurs and no employees. Because of this, launching a startup requires the owners to have a wide range of skills and considerable expertise in the areas of product, business development, design, marketing, and more.

Time and stress

A lack of employees means long hours and a lot of stress for anyone launching a startup company. A founder will also have to deal with a great deal of uncertainty, while trying to meet investor demands. By some estimates, it can take three years or more for a startup to become viable.

A steep learning curve

Startup founders need considerable knowledge of the field in which they compete. They're still going to spend considerable time researching the marketplace and their competitors, developing a business model for their product or service, and figuring out what the likely demand would be and whether their idea is feasible.

A flat structure

Because they begin small, with a handful of people on their team, startups tend to have a relaxed workplace culture where people's roles are loosely defined, team members address each other informally, and everyone is expected to perform a variety of tasks.

Taking stock

Many startups offer stock options to those they hire, at least initially, to make up for salaries that are typically less than the industry standard, and to give employees an incentive to help the company succeed. The idea that an initial public offering (IPO) would help employees get rich quickly was an idea that has prevailed since the 1990s but has been tempered somewhat over the years.

High risk

Startups often start on a shoestring budget, but growth often comes with considerable investment. Anyone investing in a startup faces a high risk, as many startups fail. Of course, there could be a considerable profit if the startup succeeds.

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What are the differences between a startup and a small business?

While startups may begin small, they're not typically referred to as a "small business" because the owners don't intend for them to stay that way for long. They're often launched by serial entrepreneurs who have experience starting businesses and running them for a few years.

A startup begins with an idea and a business plan that could rapidly help it grow into a large business. It offers a new product or service, or a considerable improvement on one that already exists. The owners are looking to disrupt the marketplace, and possibly create a new industry.

A small business starts with business owners who intend to meet an already existing demand, with a product or service that's already known to the marketplace.

Whereas a startup might develop a new cell phone app or social media platform with the idea of selling it to the world, a small business would offer goods or services within a city or neighborhood.

Startups begin with a high risk of failure, but they have the potential for rapid growth and high profits within a few years. Small business owners look for a long and steady source of income.

Startups are likely to seek funding from venture capitalists, angel investors, and an IPO. Small businesses may rely on their own savings, loans from family, their local bank, or small business loans backed by the Small Business Administration (SBA).

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