Not all recently created companies are startups nor do they have to be
A startup is simply a new company; a business that has been recently created. However, for the last five years, many business schools around the world have come up with a different academic definition for what a startup truly is.
The definition of a ‘startup’ that is most accepted by business schools was defined by Steve Blank, a serial entrepreneur and professor at business schools such as Stanford, Berkeley and Imperial College. The definition is as follows: a startup is “a temporary organization designed to look for a business model that is repeatable and scalable.” While a company is “a permanent organization designed to execute a business model that is repeatable and scalable.” Therefore the difference is that startups look for an attractive business model, while companies already have such a business model and are focused on successfully executing it. This distinction affects the nature and needs of both kinds of organizations.
Search (startup) vs Execution (company) — ”The Startup Owner’s Manual“, Steve Blank
According to Steve Blank, the search for a repeatable and scalable model must follow the scientific method approach which is based on testable hypotheses, empirical validation of such hypotheses through experiments and result analysis. This new scientific approach, also known as “the lean startup method,” developed by Eric Ries, an entrepreneur in which Steve Blank invested, helps entrepreneurs to drastically decrease the initial risk of their startups. In general, it decreases the inherent risk of launching a new product, making it work for startups and mature companies alike.
1st Stage (Pre-Seed): from Idea to MVP
The rudimentary risk at this stage is not developing a concept or a hypothesis into an MVP that users truly want. Paul Graham, who founded the startup accelerator and seed capital firm Y Combinator, summarizes this with his quote, “make something people want.”
It’s highly unlikely that the initial idea comes close to the final MVP; that’s why the Lean Startup methodology has been so successful. During this stage, the key is to learn what the user or client wants without obsessing over a “perfect” product.
Steps of the Scientific Method — Sciencebuddies.org
The Lean Start-up Methodology — Eric Ries
This is why startups that experiment quickly have higher chances of success. Why? Because they rapidly gain knowledge on the keys to their business model which allows them to decrease their risk as early as possible. The President of Y Combinator, Sam Altman, explains it in a very simple way:
What are the most important aspects you should experiment (and validate) with while launching your startup? Steve Blank believes it is most valuable to focus on “customer discovery” and “customer validation,” also known as “Product/Market fit.” To better understand these terms, you can watch this 2-minute video, as the goal of this post is rather to focus on the definition and nature of a startup.
To conclude, with this definition, a ‘startup’ does not necessarily entail tech innovation or invention; it is centered on new “business models.” It doesn’t even mention the word “technology.” My favorite non-tech startup appeared in the US back in the 1950s in the restaurant industry. Its founders looked for a new business model that was repeatable and scalable. It has then become one of the largest companies in the world: McDonalds. If you are curious about its history, I recommend that you watch the movie, “The Founder.”
The Founder stars Michael Keaton as businessman Ray Kroc, and portrays the story of his creation of the McDonald’s fast food chain.
That’s all, folks. May The Force and recurrent customers be with you!