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When Does a Startup Stop Being a Startup?

Editor’s note: This is a cross post from Mark Evans Tech written by Mark Evans of ME Consulting. Follow him on Twitter @markevans or MarkEvansTech.com. This post was originally published in January 11, 2012 on MarkEvansTech.com.

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This may be a question of semantics but here’s a question for you: When does a startup stop being a startup? At what point does a startup become a small company or a plain and simple company?

It’s an interesting question because it’s easy – and probably lazy – to describe less established high-tech companies as startups. As well, the word “startup” is lot sexier and appealing than “small business”.

So how should a startup be defined? Does it have to do with the evolution and life-cycle of its product? Is it the number of employees? Is it linked to revenue? Does it have to do with how long a company has been around? Can a startup have 10s of thousands of customers even if none of them actually pay for a service?

For example, is Freshbooks a startup despite the fact it has been around for several years, it has 80 employees and sales of about $10-million give or take a few million dollars? It’s sometimes called a startup but it’s more accurate to call it a small company.

For the sake of argument, here are some possible criteria for startups:

  1. Less than 20 employees. Once you get more  than this number of employees, a company starts to have “departments”
  2. A product still in development (pre-launch) or in market as a beta for less than six months.
  3. No sales or sales of less than $1-million, which means it’s a mini-business as opposed to a small business.
  4. It’s less than a year old, although there are companies that do go from zero to sixty in less than 364 days.
  5. No customers or only a handful of customers, who may or may not be significant clients dollars-wise.
  6. It has raised more than $5-million in venture capital. With this kind of cash, a company can support having a large team.

For more thoughts, check out this Q&A on Quora, as well as a recent blog post on Business Insider.

Editor’s note: This is a cross post from Mark Evans Tech written by Mark Evans of ME Consulting. Follow him on Twitter @markevans or MarkEvansTech.com. This post was originally published in January 11, 2012 on MarkEvansTech.com.

  • http://davidcrow.ca/ davidcrow

    @dossip:twitter used to give me grief about calling @dayforce:twitter a startup. If I remember he didn’t want potential customers to make assumptions about the stage of corporate development and their perceived risk of company stability. Not all of us have the same track record. But startup is description of corporate development, not a lifestyle.

    At Microsoft for BizSpark we used to describe a startup that met all of the following criteria:

    1. Less than 3 years in operation
    2. Less than $1MM in annual revenue
    3. Less than 10 employees
    4. Not a wholly owned subsidiary of another larger organization

    This is not complete but it was a rough way to determine if a company was a startup. I tend to paraphrase Justice Potter Stewart’s description of pornography http://en.wikipedia.org/wiki/I_know_it_when_I_see_it

    “I shall not attempt to define a startup…but I know it when I see it”

  • Greg Thomas

    Great timing on this article… “startup” was starting to feel like one of those over-used buzz words of 2011 where everyone and everything was/is a startup.  I’ve seen people start to use this word as a crutch sometimes as well – “we can’t do that because we’re a startup, etc, etc”.  @davidcrow:disqus ‘s definition below/above is good as well.

  • C Paredes Q

    I think an startup is just a learning phase of a company. For example flickr has 20+ people, but they have founded the right biz model and they know who they customers are. They can be called a company.

  • http://fraserharris.tumblr.com/ Fraser Harris

    “A startup is a temporary organization designed to search for a repeatable and scalable business model” – Steve Blank

    By this definition, a startup ceases to be a startup when its search is completed.

  • http://startupcfo.ca/ Mark MacLeod

    I think David offers up a solid practical definition. I see it more broadly.

    “startup” is a mindset. The biggest companies can be Startups if they are taking huge risks, moving quickly, and innovating massively. By that standard, Apple could be a startup. Note that they have delivered the innovation and growth that all Startups aspire to.

  • http://www.onceabeekeeper.com/ Kevin Swan

    This is my favorite definition as well.  Before finding that business model a product-market fit needs to be found as well.  A lot of startups never make it past this stage.

    Even if there is a strong product-market fit and a repeatable and scalable business model has not been found I would still classify it as a startup.  Case in point – Twitter.

  • http://davidcrow.ca/ davidcrow

    This is a great definition but it doesn’t help me explain it to people outside of our little monoculture. 

  • http://www.sandglaz.com/ Zaid Zawaideh

    I have difficulty accepting Twitter as a startup. They already wield significant power in their market and are of a significant size.

  • http://www.sandglaz.com/ Zaid Zawaideh

    I think the Bizspark criteria are a good proxy, although these are industry dependant.

    I would remove #1 since it is industry dependent and would add a profit criteria to #2 as well. (e.g. if I have a profitable business with small revenue, it is a small business not a startup)

  • http://twitter.com/paul__sullivan Paul Sullivan

    Hey Mark, here’s another Quora link asking that very question — http://www.quora.com/Startups/At-what-point-is-a-company-no-longer-a-start-up?
    My (biased) answer remains… when the business can operate without the day-to-day involvement of the founder(s). Anecdotally… if you can take a week or two vacation (without checking in), your biz is no longer a startup.

  • Pragmatic

    I think is a startup when sales are lower than funds (when is still burning founder’s o VC’s money)

  • http://www.sandglaz.com/ Zaid Zawaideh

    I like your definition! It boils down to the point where your start-up stops being a child and can function more or less on its own

  • http://www.kickofflabs.com/ Josh Ledgard

    In general I just hate the word startup. You are either a hobby or a business. You cross the line when you make money. :) I wrote a post about this recently: http://blog.kickofflabs.com/why-startups-should-never-be-your-target-customer