What defines a “startup”? For such a commonly used word, it’s a surprisingly tricky question. Can you still be a startup after five years of doing business? What if you don’t have a ping-pong table in your breakroom, or a creatively misspelled name?
The answers, it turns out, are “yes,” “yes,” and “sure, anything is possible.” Let’s dig a little deeper and try to suss out exactly what makes a startup a startup. Keep in mind that this is an informal analysis, and that not everybody will agree on these parameters (want to voice a disagreement? Leave a comment below!).
The things that differentiate startups from other businesses fall broadly into three categories: mindset, how they approach the issue that they’re established to solve; methodology, the logistical decisions they use to solve that issue; and market, the value and recognition they have accrued during their lifespan.
Startups have a growth mindset
All startups are new businesses, but not every new business is a startup. In the words of Stanford professor Steve Blank, a startup is “an organization formed to search for a repeatable and scalable business model.” That means that in order to qualify for startup status, a business has to have the inherent possibility for iterative growth.
This criterion cuts out businesses like grocery stores, lemonade stands, and mom-and-pop storefronts. While they
While this growth is far from guaranteed, the startup mindset stipulates that the potential for a runaway success is worth navigating the long odds to achieve it. Often, this growth comes in the form of raising venture capital.
Startups have a flexible methodology
How a company operates on a day-to-day basis is another factor in whether it should consider itself a startup. One key metric to keep an eye on is how many employees an organization has. Alex Wilhelm at Crunchbase, who once posited that 100 employees was the upper limit for startups, now puts that number at 500 , but the core idea remains consistent: if your headcount has risen drastically and has formed a more rigid structure, you’ve likely graduated from being considered a startup.
Startups also often are flexible in the tools and technology they use to achieve their goals. Agile development and lower reliance on traditional infrastructure can both let a startup pivot to meet the needs of an adapting marketplace.
Institutional flexibility is another key facet of startups. Consider what would happen if news broke tomorrow that greatly affected your industry. Could your company immediately react and pivot, or would it require a long series of meetings and signoffs from a lot of stakeholders? If it’s the latter, the company probably is no longer a startup.
Startups don’t yet have a dominant market position
Sometimes, young companies graduate from being called startups by virtue of financial success and impressive market share. For example, an American e-commerce company was formed to “search for a repeatable and scalable business model.” However, with a current valuation of roughly $6.8 billion, it has reached an enterprise-level of certainty.
How much value is too much for startup status? There isn’t a hard and fast rule, but “a valuation of a billion dollars or greater” is a solid heuristic. In borderline cases, it helps to look at the company’s mindset and methodologies, as well as how broadly known it is. If a billion-dollar organization is known worldwide and no longer has to grow to be viable, it’s probably not a startup.
Passionate about startups succeeding? Let’s talk about it.
 “The Definition of a Startup In 2018 (By The Numbers)” (crunchbase.com)
Third parties mentioned and Fidelity are not affiliated.
Included is a link to a website that is unaffiliated with Fidelity. Fidelity has not been involved in the preparation of the content supplied at the unaffiliated site and does not guarantee or assume any responsibility for its content.
Sample scenarios are for illustrative purposes only.
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.