“High expectations are the key to everything.” –Sam Walton, Walmart Founder

“The biggest risk is not taking any risk… In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” -Mark Zuckerberg, Facebook Founder

“When you find an idea that you just can’t stop thinking about, that’s probably a good one to pursue.” – Josh James, Omniture CEO and co-founder

Well, all of them – Walmart, Facebook, Omniture, and many other monsters of today’s world of business began their journey as startups some time ago. Today, we can hear the word startup nearly every day, and it has grown into a worldwide habit to call every young, fast growing company a startup.

But is it right? What business can be called a startup? And what are the common features of these business entities? As a normal citizen of the 21st century, I decided to take my question to ChatGPT 🙂 Here is the definition I got:

A startup, or start-up, is a company or project initiated by an entrepreneur to seek, effectively develop, and validate a scalable business model.

Among the key characteristics of startups ChatGPT identified-

• Innovation: aiming to bring new, innovative products or services to the market or significantly improve existing ones. Startups frequently seek to disrupt traditional industries with fresh approaches and advanced technologies.
• Growth and Scalability: Startups are typically designed to grow rapidly. They aim to increase revenue while keeping operational costs low.
• Uncertainty and Risk: Startups operate under conditions of extreme uncertainty and risk. They often start with limited resources and face the challenge of proving their business model in the market.
• Funding/Investment: Many startups rely on external funding sources. They may go through multiple rounds of financing to support expansion.

Besides these qualities, the world’s intellect mentioned that many startups can be characterized as the businesses that leverage cutting-edge technologies like artificial intelligence, machine learning, blockchain, and cloud computing to build innovative solutions. They often practice customer-centric approach and usually begin with a lean approach, utilizing minimal resources to validate their ideas quickly.

Among ‘classic’ examples of technology startups are companies like Uber, Airbnb, and Spotify which began as startups that revolutionized their respective industries through technological innovation.

Also, we can often hear the term ‘Software Startups’: Slack, Zoom, and Stripe, for example, started by offering novel software solutions that met emerging market demands.

Well, I have found many attempts to define a startup company. According to Investopedia, a startup is a young company founded by one or more entrepreneurs to develop a unique product or service and bring it to market. Typically, startups aim to disrupt existing industries or create new ones entirely.

Well, all in all, it looks like startups differ from traditional small businesses and established corporations due to their innovative potential, scalability, and high-risk, high-reward nature.

What? High-reward nature, you say? Sounds nice, but is this really so?

According to numerous surveys, only about 40% of startups ever become profitable; about 30% fail after some unsuccessful attempts, and the other 30% remain unprofitable for quite a long time.

About 10% of all startups fail and stop to exist after a year of operation; 30% manage to last through two years, and half of all startup companies remain in business for appr. five years, and 10 years is the maximum life span for appr. 70% of all startup companies.

Alright then. What are the reasons of their failure then? Again, it was not difficult to find multiple reports and surveys that listed similar sets of reasons. CBInsights claim that many startup companies (42%) face the fact that their innovative products/services do not attract enough customers in the market. As a result of short-sighted planning and decision-making many startups run out of cash (29%) and fail; Another big group (23%) lack good team management and make mistakes while hiring people into their teams. And, of course, making an offer of a poor product (which lacks some functionality or was built in a big hurry and thus has multiple flaws) can result in low customer interest and bad sales.

Other reasons, like poor marketing, inability to find compromise with investors, losing focus, bad location or timing for sales of the product, as well as ignorance in communication with customers, may lead to gradual deterioration and collapse of business.

The Internet is full of articles devoted to the highest-valued privately-owned startup businesses, and there is no surprise: the attention focus is always set on the winners. But the owners of startup businesses must remember that, just like in every other area of business or knowledge, – there are a few basic principles which must be carefully observed if you want to keep your startup baby alive.

In a few upcoming posts I will share some thoughts about these basic principles.