Quick, Can You Think of a Start-up?
Perhaps you’ve found a new job; if so then congratulations! Or maybe you’re just starting to look for one (in which case, good luck!). The thing is, if you work in the tech sector – or the environmental sector, or the health sector, or the finance sector, or the… you know what, if you work at all – chances are good that some of the roles you’ve considered, or have at least scrolled through, are marketing themselves as “start-up” positions.
Which shouldn’t be surprising: start-ups are everywhere! The rise and dominance of the start-up on the modern job market is hard to undersell. According to the Centre for Entrepreneurs, in 2017 alone there were 589,008 new businesses registered in the UK, with as many as 187,250 of those located in London. Most of these companies would be considered start-ups (with incorporated contractors accounting for the majority of the difference), meaning that in one year we gained a new start-up for every 1,000 British citizens – that’s a lot of start-ups!
Or is it? To be clear, I’m not arguing that 589,008 isn’t an impressive number or suggesting that “we need to do better” like a politician might. No, I’m questioning why most of those businesses are considered to be start-ups (or even if they are)? Sure, they’re new companies, that’s clear, but is that all that’s required to be considered a start-up?
If I was to ask you to close your eyes and picture the classic stereotype of a start-up, what do you see?
It probably isn’t a small legal firm, but in the last year 514 new solicitor applications were submitted to the relevant legal bodies; assuming they were all successful, that means 514 of those new companies are based in the legal sector. Would you consider them as start-ups? They’re clearly new companies, but can a small legal firm, or a coffee shop, or even a new media house, be granted the start-up label? And if not, why not?
That’s the kind of question that gets stuck in my mind, so I decided to actually look into it. With the help of my colleagues (thanks guys and gals!), I started getting answers to the question: what do you think a start-up is? By asking that question to the majority of people that we’ve spoken to (mostly in-demand tech jobseekers) over the last month we’ve been able to gather some pretty interesting data. So what does it say? What is a start-up? In short: people really aren’t sure.
Which is an odd conclusion, because everyone we asked had heard of a start-up, and could even give an example of one if pressed. The phrase itself is well known and most people feel confident about how to use it, but when we got even a little bit granular any semblance of conformity went out the window. Most people answered quickly and with certainty; they believed they could define a start-up.
But when you compare those definitions, no two people really agree.
In fact, the answers we were getting were so non-uniform and diverse that we actually paused the research after a couple of weeks and reviewed our process. We restarted with a more focused set of questions, aimed to highlight specific areas that at least showed potential for becoming trends. Again, we found a wide range of opinions (some of which, despite the disparity, were quite strongly held) but it did at least begin to highlight some standard trends.
For the most part, then, a “start-up” is defined through some combination of the following:
- Company size
- Company age
- Reliance or use of funding
- Product specificity
None of these were universally accepted, with some people swearing that a start-up could have 10,000 employees, or have existed for decades, or have annual profit in the £10-millions, or even operate a range of subsidiary products or companies beneath them (so basically, Alphabet, Google’s parent company, would count as a start-up in some cases). Yet, if we take the answers we received as a collective, then these traits were what we’ve come to term the four pillars of a “start-up”; the four elements that allow a company to be granted “start-up” status.
Personally, this was what first came to my mind when I started thinking about the question. Start-ups, for me, should be relatively small, with a fairly flat management hierarchy and lots of flexibility within roles. It turns out that I’m not alone as, with a few notable exceptions, most people considered size an important trait for a start-up; in fact nearly three-quarters of people gave size as a key defining factor without prompting, making it easily the most consistent “pillar”.
Of course, what no one could agree on was how company size mattered. Whilst around 5% of people who mentioned size claimed that it was not a limiting factor (i.e. a start-up can be any size), most agreed that 100 employees was around the absolute cut-off, with 63% of answers actually setting the bar much lower, at 20 employees or less. Still, that’s a fairly large range and I was surprised that over a quarter of people felt a company of 50 people (what I would consider quite sizeable within the tech sector) would still classify as a start-up.
Age was another surprise, but not because people had a broad range of definitions. It was a surprise because, whilst most online definitions of “start-up” include some mention that the company should be relatively new, company age was our least reported “pillar” amongst respondents. Less than a third of people considered age as a factor at all, and a further 8% felt that age explicitly didn’t matter when considering whether a company was a start-up.
For those that did class age as a key start-up trait, most – well, exactly 50% – felt that 2 years was the limit for a company to still be considered a start-up. However, that includes a sizeable subset of people that were even more extreme, with ⅘ of that group stating that once a company had celebrated just one birthday their start-up status had to be revoked! Conversely, 10% of respondents considered 2 years much too low, extending out the maximum age to a total of 5 years.
NB: It should be noted that almost no one that we spoke with gave any details on the minimum requirements they believe are needed to be considered a company. As a result, it might be possible that a one-year age limit only applied once an initial product had shipped or been prototyped, or funding rounds had been successful, or once a non-founding member had been hired.
Whilst we expected company age to be the second most common factor in determining start-up status, our results indicated that many more people consider reliance on third-party funding to be significant.
Nearly 40% of respondents felt that a company must either have gone through funding rounds or be actively involved in that process to be considered a start-up. When queried, anyone who held this view agreed that start-ups cannot be turning a significant profit, though if a respondent didn’t consider funding as part of the definition for a start-up then they also felt that profit levels were not relevant.
However, when pushed on funding specificity few people had a clear answer, with most just reiterating that some level of funding was required. Answers ranged into the millions, and it seemed that most people felt there was no funding cap to be considered a start-up still; in other words, being successful at attracting investors isn’t sufficient reason to reclassify a company, which feels fairly intuitive.
Honestly, “product specificity” combines a block of answers that encompassed a range of uncommon but consistent ideas focusing on the service or product that a start-up was attempting to create. What they all had in common was an overarching belief that start-ups needed to have limited scope; they should be tightly focused on a specific problem, often within a defined sector or target market.
As a result of that narrow focus, most people (55% in fact) that considered the product as an integral trait of a start-up felt it had to be “singular”. That is to say, they felt a true start-up should only have a single, core concept, normally resulting in one lone product, around which the whole company was formed.
Everyone else that focused in this area was more interested in the nature of the product itself. Common answers included that it had to be “disruptive” in some form, or that the product was “high-risk/high-reward” within the given marketplace, creating an image of start-ups as very boom-and-bust enterprises. The remaining ideas have been grouped under what we’ve titled “evolving”, but “flexible” or “adaptable” would be just as accurate; these people believe a start-up won’t have a strict roadmap, but instead would proactively modify their product’s direction as it takes shape.
So what can we take away?
Well, to be honest, the main lesson is that people don’t have a clear idea about what defines a start-up, but they do have some pretty strong opinions.
If you look at the break-down of what percentage of people gave each of our four pillars as a key start-up trait, then you might consider size a fair focus point. However, it’s not just that 30% of people disagree, it’s that they disagree a lot.
One respondent was very clear that “any size of company can be a start-up”, whilst another said:
“Size and finance absolutely don’t matter - I’ve worked with or spoken to 5 person and 500 person companies, those that have achieved £7 million in funding and ones that have operated for [many] years that are all still start-ups.”
Interestingly, both of these responses came from people with direct experience working with or for start-ups. In fact, prior exposure to the inner working of start-ups did appear to have a noticeable impact, with the vaguest responses often being given by those with the most real-world experience.
Still, if we were to look at our dataset and zero in on a “common wisdom” definition for a start-up then it would look something like this:
- 20 or fewer employees
- Funded through third-party investment
- Focusing on a single, disruptive product or service
- Founded in the last 2 years
How does that match-up with your own definition of a start-up?