Ben Farahmand: What is a Startup?

The Kauffman Foundation in the study, The Importance of Startups in Job Creation and Job Destruction, defined a startup as any firm that's younger than one year (1). However, this umbrella term covers all types of startups irregardless of industry, and is too broad to use for this thesis. The working definition for this thesis is similar to the Startup Genome. They define a startup as “a developmental organism that evolves along five interdependent dimensions: Customer, Product, Team, Business Model and Financials" (2). This means that a startup is either an individual or a small group of people working on solving a problem by starting a business. The differences in my definition is that I add five more dimensions that I've surveyed and observed entrepreneurs managing in order to grow their startup. These ten areas are business development, customer development, finance, fundraising, legal, marketing, operations, product development, sales, and team.

Eric Ries in The Lean Startup defines a startup as “a human institution designed to create a new product or service under conditions of extreme uncertainty” (3). His definition is along similar lines as the Startup Genome's except that he includes the startup's environment: "conditions of extreme uncertainty." The "uncertainty" is an important aspect to the definition because it captures the fact that a startup lives or dies by how well it acquires and retains customers. The definition of a startup for this thesis combines both the Startup Genome's and Ries' definition with the aforementioned survey and observations.

Definition:
A startup is a human institution that evolves under conditions of extreme uncertainty along ten interdependent dimensions (business development, customer development, finance, fundraising, legal, marketing, operations, product development, sales, and team) to create a new product or service for a specific customer/user group.

I think this is a useful definition for mentoring because it reveals the strategic areas that mentors can provide business advice.

The types of startups studied and entrepreneurs interviewed for this thesis have all been within the information technology industry.

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Sources:

The Importance of Startups in Job Creation and Job Destruction, Kauffman Foundation
Startup Genome Report Extra on Premature Scaling, August 29^th, 2011
The Lean Startup, Eric Ries

1 comment:

AnonymousAugust 21, 2012 at 7:50 PM
In saying that a startup is defined as such, and listing ten interdependent dimensions, you are essentially stating that in order to be classified as a startup, then you must go through these ten stages. When, in fact, a company could explode out of the 'start-up' nomenclature without ever having marketed a single thing (instagram) or ever have fundraised a single dollar (GitHub) or not ever worrying about their team (facebook ::i kid, or do i?::).

Just a though: maybe put a clause that these are the ten area's that a human institution could go through, however not all are essential. I liken it to the growth of a small group, nods to Bradford - Group development, are there similarities to the theories of small group development that overlap with the theories of the growth of a startup? However with small group development, any group will complete their life cycle, it is only a matter of time. Do successful startups complete particular life cycles that unsuccessful ones do not? is this directly related to the Bradford article?

Don't let these questions side rail your focus. You just got me thinking.