A Beginner's Guide to Understanding the Startup

What is a Startup?

About this Article:

The term Startup has many definitions. This Article short lists three famous definitions of a Startup, to discuss in the study circle. It also explains Taxonomy of a Startup. and Startup ecosystem. 

Definitions of Startup

1. SBA definition of Startup

The Small Business Administration defines a Startup as:

“In the world of business, the word "startup" goes beyond a company just getting off the ground. The term startup is also associated with a business that is typically technology oriented and has high growth potential. Startups have some unique struggles, especially in regard to financing. That’s because investors are looking for the highest potential return on investment, while balancing the associated risks.”

[Small Business Administration]

2. Startup-definition by Steve Blank

Blank is recognized for developing the Customer Development method that launched the Lean Startup movement. He is also an adjunct professor of entrepreneurship at Stanford.
As per Blank:

"A startup is an organization formed to search for a repeatable and scalable business model."

[Steve Blank] 

3. Startup-definition by Eric Ries

Ries is a famous author of the Lean Startup Methodology. He is co-founder and CTO of IMVU, the largest online metaverse. He defines a startup as:

"A Startup is a human institution designed to create a new product or service under conditions of extreme uncertainty."

[Eric Ries]

Summary:

Startups are not smaller versions of large companies, but require their own set of processes and tools to be successful.




What comes to your mind when you hear the word Startup? Please leave your comment.

Pivot or persevere? The hardest decision in product managemnt!

Pivot is extremely important in Basketball, because it is used very frequently whether you are on the way, you are facing problems, whether you catch the ball in the lane, you are able to choose which foot you can pivot with.

Although it looks like a beginner's move, the best players have been able to master and utilize it to dominate at all levels.

"There is no bigger loss of creative potential than the misguided decision of persevere"

[Book: the Lean Startup]

Mastering the Art of Exit Strategy

While looking at SBA definition of Startup, you might have noticed that it says:   

"Startups have some unique struggles, especially in regard to financing." 

During their financial struggle, silicon valley startups normally look for funding towards angel investors or venture capitalists. Here a fundamental question arises; what can be the return on Investment (ROI) for an angel investor or venture capitalist? exit strategy gives the answer of this basic question.

So what is an Exit Strategy?

An exit strategy is to plan what may happen if an investor who has previously put money in a startup years before, will get their money back?


As a startup you must have an exit strategy for your investors and yourself.

• For investors an exit strategy enables them to cash in on their investments.
• For co-founders an exit strategy also protects the value of your startup.

Below are some common examples of exit strategies:

1. Initial Public Offering (IPO)
2. Private Offering
3. Merger & Acquisition

Conclusion

In short investors want to know how they will get their money back before they invest it in your startup. A startup must be able to write and pitch an effective exit strategy to protect its own value and to enable its investors to get their return on investment after a predetermined criteria meet or exceed.

Unraveling the Distinctions Between Incubators, Accelerators, and Angel Investors

The startup supporting institutions including Incubators, Accelerators and Angel Investors are sometimes misunderstood and are also used interchangeably. There are however differences among  these startup supporting institutions, which are necessary for a startup to know. I found Susan Cohen doing a pretty good analysis in identifying and describing the differences among these. The following chart explains them.

Accelerate Your Success: A Comprehensive Guide to Understanding Startup Accelerators

The concept of Startup Accelerator is sometimes misunderstood, and there are different  understandings or definitions available, I however found the best definition of Startup Accelerators by Susan Cohen, she define accelerators as"

"Broadly  speaking,  they (accelerators)  help  ventures  define  and  build their initial products, identify promising customer segments, and secure resources,including capital and employees. More specifically, accelerator programs are programs  of  limited-duration—lasting  about  three  months—that  help  cohorts  of startups  with  the  new  venture  process.  They  usually  provide  a  small  amount  of seed capital, plus working space. They also offer a plethora of networking opportunities, with both peer ventures and mentors, who might be successful entrepreneurs,  program  graduates,  venture  capitalists,  angel  investors,  or  even  corporate executives.  Finally,  most  programs  end  with  a  grand  event,  a  “demo  day”  where ventures pitch to a large audience of qualified investors."

[...Susan Cohen,2013]

In a later work she further refines  an accelerator as

“a fixed-term, cohort-based program, including mentorship and educational components, that culminates in a public pitch event or demo day.”

 [...Cohen and Hochberg, 2014]

So the most important attributes of an accelerator that differentiate it from other startup supporting institutions are that:

1. Accelerators are Fixed-term 
2. Accelerators are Cohort-based
3. Accelerators are Mentor-driven
4. Accelerators culminates in a public pitch event or demo day

Demystify the Role of Angel Investors: Grasping Investment Strategies and Startup Support

The term "angel investor" was coined by William Wetzel, founder of the Center for Venture Research and business professor at the University of New Hampshire. 

An angel investor invests his/her own money in small startups or entrepreneurs. Angel investors can be sometimes family and friends. It is often assumed that angel investors provide more favorable terms to a startup than others. They invest in startups in exchange for ownership, equity or convertible debts.

An angel investor have to meet the standard of Securities Exchange Commission (SEC) for accredited investors. An angel investor must have annual income of $200,000 and a minimum net worth of $1,000,000.

Angel investors are also know as business angels, seed investors or private investors.