What Is a Startup?
The term startup refers to a company in the first stages of operations. Startups are founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand.
Key Takeaways
• A startup is a company that’s in the initial stages of business.
• Founders normally finance their startups and may attempt to attract outside investment before they get off the ground.
• Funding sources include family and friends, venture capitalists, crowdfunding, and loans.
• Startups must also consider where they’ll do business and their legal structure.
• Startups come with high risk as failure is very possible but they can also be very unique places to work with great benefits, a focus on innovation, and great opportunities to learn.
Understanding Startups
Startups are companies or ventures that are focused on a single product or service that the founders want to bring to market. These companies typically don’t have a fully developed biz model and, more crucially, lack adequate capital to move onto the next phase of business. Most of these companies are initially funded by their founders.
Many startups turn to others for more funding, including family, friends, and venture capitalists.
Startups can use seed capital to invest in research and to develop their business plans. Market research helps determine the demand for a product or service, while a comprehensive business plan outlines the company’s mission starement vision, and goals, as well as management and marketing strategies.
The first few years are very important for startups This is the time that entrepreneurs should use to concentrate on raising capital and developing a business model.
Special Considerations
There are a number of different factors that entrepreneurs must think of as they try to get their startups off the ground and begin operations. We’ve listed some of the most common ones below.
Location
Location can make or break any business. And it’s often one of the most important considerations for anyone starting up in the business world. Startups must decide whether their business is conducted online, in an office or home office or in a store. The location depends on the product or service being offered.
For example, a technology startup selling virtual reality hardware may need a physical storefront to give customers a face-to-face demonstration of the product’s complex features.
Legal Structure
Startups need to consider what legal structure best fits their entity. A sole-prpritarishp is suited for a founder who is also the key employee of a business. Partnerships are a viable legal structure for businesses that consist of several people who have joint ownership, and they’re also fairly straightforward to establish.
Funding
Startups often raise funds by turning to family and friends or by using venture capitalists. This is a group of professional investors that specialize in funding startups. Crowdfunding has become a viable way for many people to get access to the cash they need to move forward in the business process. The entrepreneur sets up a crowdfunding page online, allowing people who believe in the company to donate money.
Startups may use credit to commence their operations. A perfect credit history may allow the startup to use a line of credit as funding. This option carries the most risk, particularly if the startup is unsuccessful. Other companies choose small business loans to help fuel growth. Banks typically have several specialized options available for small businesses—a microloan is a short-term, low-interest product tailored for startups. A detailed business plan is often required in order to qualify.
Advantages and Disadvantages of Startups
There are a variety of advantages to working for a start up business, More responsibility and opportunities to learn are two. As startups have fewer employees than large, established companies, employees tend to wear many hats, working in a variety of roles, which leads to more responsibility as well as opportunities to learn.
Startups tend to be more relaxed in nature, making the workplace more of a communal experience, with flexible hours, increased employee interaction, and flexibility. Startups tend to also have better workplace benefits, such as nurseries for children, free food, and shorter workweeks.
The work at startups can also be more rewarding as innovation is welcomed and managers allow talented employees to run with ideas with little supervision.
One of the primary disadvantages of a startup is increased risk. This primarily applies to the success and longevity of a startup. New businesses need to prove themselves and raise capital before they can start turning a profit. Keeping shareholders happy with the startup’s progress is critical. The risk of shutting down or not having enough funds ( capital) to continue operations before turning a profit is ever-present.
Long hours are characteristic of startups as everyone is working toward the same goal—to see the startup succeed. This can lead to high-stress moments and sometimes compensation that isn’t commensurate with the hours worked. Competition is also always high as there tend to be a handful of startups working on the same idea.
Pros
• More opportunities to learn
• Increased responsibility
• Flexibility
• Workplace benefits
• Innovation is encouraged
• Flexible hours
Cons
• Risk of failure
• Having to raise capital
• High stress
• Competitive business environment
Examples of Startups
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