Startups are a particular kind of business. But when do you stop being one?
With people still throwing around the term startup when talking about companies like Uber (6 years old), Facebook (11 years old), and Google (17 years old), just how long do you have to be around before you’re no longer considered a startup?
One of the reasons that this question is so hard to answer is that there is no universally accepted definition of what a startup actually is.
Merriam-Webster defines “start-up” (whether or not to use a hyphen is another question without a universally accepted answer) as “a fledgling business enterprise.” [Related Article: Old Dog, New Tricks: What's the Best Age to Start a Business?]
Such a simple definition would make it easier to answer our question, but the examples above make that impossible. Even if that weren’t the case, what’s the numerical definition of fledgling? Hint: there isn’t one.
Startup = growth
Growth seems to be a differentiator for many people when trying to define a startup. According to Paul Graham, founder of Y Combinator, “a startup is a company designed to grow fast.”
Graham puts forward a cogent argument that startups are a different breed from other companies and not merely fledglings. He argues that many, many new businesses are founded every year but that the vast majority of these do not qualify as startups.
Instead, a startup is focused on growth and to have the possibility for significant growth a company must “(a) make something lots of people want, and (b) reach and serve all those people.” That is why Graham does not count, say, a florist or other local business as a startup.
Graham doesn’t put any time limit on being a startup. He also isn’t the only one associating the word startup with growth. According to the U.S. Small Business Association:
“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.”
Steve Blank, Silicon Valley serial entrepreneur, laid out a somewhat similar definition, writing that: “a startup is an organization formed to search for a repeatable and scalable business model.”
What these definitions have in common is potential. They describe what the companies in question can (or aspire to) do. Because of this, while they are useful for separating startups from traditional early-stage businesses, they offer less advice on when a startup stops being a startup. When they achieve their potential? What if they don’t achieve it? Are they startups in perpetuity?
The 50-100-500 rule
Many, many people have tried to set a limit on what constitutes a startup, using various metrics such as number of employees, number of funding rounds, revenue, or profit.
TechCrunch writer Alex Wilhelm is one of those who made a stab at defining what makes a startup a startup. After proclaiming that “nearly everyone is wrong” about what a startup is, Wilhelm sets out his own 50-100-500 rule. According to his rule, if a company meets or exceeds any of the following criteria, it is not a startup:
- $50 million revenue run rate (forward 12 months)
- 100 or more employees
- Worth more than $500 million
Related Article: Let's Get Real: Startup "Truths" Re-Examined
Under this rule, we can decide that none of the examples I mentioned earlier are startups. But we still haven’t decided that based on their age. While those companies are some of the elder statesmen of the startup world, Chinese company Beibei also fails Wilhelm’s test (touting a $1 billion valuation) despite being just a year old.
The problem with Wilhelm’s rule (and all the others like it) is that the numbers involved are fairly arbitrary. For example, venture capitalist Adam D’Augello set the employee limit for a startup at 50. There’s simply no way of categorically saying which number (or even metric) is the right one to use.
Startup state of mind
For many, a startup is less easily defined. Homejoy founder Adora Cheung said that “Startup is a state of mind”, a sentiment echoed by many in the startup community. For them, startups work hard and fast to innovate and change our ways of working or living.
They eschew the trappings of traditional businesses and hope that doing so will give them an edge. This often relates to company culture. Startups love to offer perks (if not always high salaries), such as ping pong, fully-stocked kitchens and flexible working hours.
Of course, putting a ping pong table in the offices of IBM won’t make it a startup but these things all feed into the state of mind that Cheung references.
The key thing is that none of these definitions actually focus on age. Instead, they look at how the business is run or how it performs. The difference between them is important, though.
If we view being a startup as meaning a company has yet to hit certain performance or financial levels, it’s a label to leave behind as soon as possible.
On the other hand, if we view a startup as being run with a certain mindset, it’s something to hold on to. Nick Woodman, CEO of GoPro, advised companies to “never let yourself stop being a startup.” [Related Article: 5 of Your Biggest Startup Problems Solved]
Maybe we can’t build an absolute rule out of these definitions, but we can see tendencies. Startups tend to grow quickly (or want to). They tend to create a certain type of work environment. Despite these tendencies, it’s basically up to you to define your business however you want.
So, at what age do you have to stop calling yourself a startup? Potentially never. It’s up to you.