What Is A Startup? (With Definition, Types And Advantages)

By Indeed Editorial Team

Updated 13 December 2022

Published 28 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A startup is an entrepreneurial venture in the early stages of operations, typically created for resolving real-life problems. As many startups solve society's needs, they attract investors and funders because of the tremendous growth opportunities. If you have an interest in working in a startup, understanding everything about a startup can be beneficial to make an informed decision. In this article, we answer “What is a startup?”, explore its types, understand the factors that affect the operations of a startup and discover a few advantages of a startup.

What Is A Startup?

The answer to the question, “What is a startup?” is that it is a new business venture providing services or products to an existing and growing market. A startup is in the first stage of operations and comprises one or more entrepreneurs. The primary aim is to answer market demand by creating new and innovative products or services. While most small businesses might intend to stay small, a startup focuses on fast growth in a designated market. Usually, such companies start as an idea and gradually grow into a viable product, service or platform.

Startups begin with high costs and have limited revenue. Also, they do not have a developed business model and lacks adequate capital to move to the next phase. As a result, these companies seek funding from various sources, such as venture capitalists, angel investors and banks. Investors or lenders might offer additional funds for a share of future profits and partial ownership. Often, these companies use seed capital for investing in research and developing business plans. Research helps them determine the demand for a specific product and a business plan outlines the company's goals and marketing strategies.

Related: The Importance Of Entrepreneurship: Features And Types

Types Of Startups

A startup company's purpose is to create products that target an untapped market or improve the existing one. Before working in a startup, understanding the types of startups is essential. These six types are:

Scalable startups

Often, companies working in the technology domain belong to the scalable startup group and these companies work hard to rapidly grow and achieve a high return on investment (ROI). This type of startup requires extensive market research to determine untapped market opportunities. Some examples of this type of startup are consumer and business apps. This startup model requires external capital to generate demand and ensure company expansion. Scalable startups do this by raising capital from external investors.

With the investment they receive, a startup can support growth initiatives and focus on grabbing the target market's attention. A scalable startup is a right choice if a business product or service has an untapped market and offers vast growth potential.

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Small business startups

The purpose of a small business startup is longevity rather than scalability. While these businesses have an interest in growth, they grow at their own pace. Business owners usually bootstraps and self-finance these startups. This means that they have less pressure to scale. Some examples of small business startups include hairdressers, grocery stores, travel agents and bakers. Also, many of these startups are family-owned. A small business startup is a right choice if a business plans to hire locals and family members to operate a business or create a sustainable and long-lasting business.

Social entrepreneurship startups

Unlike other types of startups, a social entrepreneurship startup does not focus on wealth generation for the founders. Instead, they build such a business to change the environment and society positively. Some examples of these companies include charities and non-profit organisations. These companies usually scale for doing philanthropy activities. Though they operate like other startups, they do it through donations and grants. A social startup is a right choice if a business plans to create a positive environmental or social impact or if the company has an idea of solving a widespread social problem.

Related: Entrepreneur Vs. Intrapreneur: Differences And Similarities

Large company startups

A large company or offshoot startup includes large companies that have been in operation for a long time. Companies that fit into this category start with revolutionary products and quickly become famous. As big businesses are self-sufficient, they grow along with new market demands and trends. For this reason, it is essential for these companies to keep up with changes to sustain themselves.

Backed by support and capital, these offshoot startups focus on diversifying product offerings and plans to reach new audiences. An offshoot startup is a right choice if a business owns a large company or wants to penetrate a new market that is not the business's primary focus.

Lifestyle startups

People who have hobbies and want to pursue their passion can build a lifestyle startup. Often, these business owners desire independence and spend their energy, money and time building a startup. These business owners earn money by pursuing their favourite hobby or activity. Some examples of lifestyle startups include a dancer opening a dance school, an avid traveller starting a touring company or a software developer starting online coding classes.

A lifestyle startup is a right choice if a business owner has a hobby they can pursue or is passionate and creative about starting a new business on their hobby.

Related: 10 Entrepreneur Characteristics That Lead To Success

Buyable startups

Unlike other startups on this list, buyable startups do not aim to become large and successful. A business owner builds such a company from scratch to sell it to a big company. Usually, you are likely to find such companies in the technology and software industry. Many of these startup industries are in the mobile application development industry. A buyable startup is a right choice if a business owner wants to develop a company but do not want to operate it long term or if the business idea has tremendous growth potential.

Related: 12 Different Types Of Entrepreneurship

Factors Affecting Operations Of A Startup

Here are a few factors that can affect the operations of a startup:

Location

The location of a startup can decide its success and failure. To effectively begin operations, a business decides whether they plan to conduct it online, offline or in a store. A startup's location depends on the products or services a company offers. For instance, an all-natural peanut butter company may need a physical store to provide customers with a taste of their product.

Legal structure

Understanding the legal structure that best fits the organisational requirement is essential for building a successful company. A sole proprietorship is ideal for a startup if the owner is a key business employee. A partnership is a good option for companies with over one founder. A startup company can reduce its personal liabilities by registering it as a limited liability company (LLC).

Related: How To Become A Legal Advisor (With Salary And Job Duties)

Funding

To begin business operations, a startup requires funds. They can do this by raising capital from crowdfunding or venture capitalist. Entrepreneurs can set up a crowdfunding page, allowing people to donate money. They can even raise money from venture capitalists. Businesses can even focus on small business loans to grow. Often, to qualify and receive funding, a business prepares a detailed business plan and strategy.

Related: Different Strategies For Acquiring Funding For Startups

Advantages Of Working In A Startup

Here are a few advantages of working in a startup:

Provides more learning opportunities

Often, a startup delegates more authority to employees than large corporations. This is because most startups cannot recruit multiple employees with diverse responsibilities. Usually, they hire employees based on a specific skill set but may assign additional responsibilities to compensate for the extra work. This can be an advantage for new professionals who want to learn new things.

Provides flexible schedule

Many startups provide flexible work schedules and some even offer work from home. This is an excellent benefit for professionals who want to maintain a work-life balance. When companies provide a flexible work schedule, it increases work effectiveness because employees can focus on work without getting overwhelmed.

Offers unique perks and benefits

Working in a startup differs from working in any other type of business. The experience employees gain at a startup differs from other companies. Some startups may provide catered lunches or nap time to encourage employees to work productively. They provide unique perks and benefits to keep employees happy.

Promotes innovation

A startup gives employees opportunities to show their expertise and abilities by contributing to their growth or success. Unlike large corporations that follow a streamlined process, employees working in a startup can pitch their ideas directly to the top management. This work environment is ideal for more creative people who want to share their new ideas.

Related: Innovative Entrepreneurship: Definition and Skills

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