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When Does a Startup Become a Company

When Does a Startup Become a Company?

Bongiorno!

A startup becomes a company once it becomes profitable and is happy with revenue. Now that doesn’t mean they aren’t growing or looking to grow. It means the right people are in the right positions. The services or products offered are doing well in the market and hopefully disrupting the industry.

But there is quite a bit more to unpack with this question. Some people think a startup has to be in tech. Some think it has to be less than five years old. Every time you ask this question to a different person, you’ll probably get a different answer.

Maybe you’re interested in venture capital or have a startup and want some answers. So let’s break it down a bit further so you can come to your own conclusions.

When Does a Startup Get Its Wings?

This is a much easier question to answer. You’re no longer a startup when you’re profitable and have reached a point of stability. 

You’re no longer hustling beard oil out of your mom’s basement. You took the still out of your grandma’s born.

via GIPHY

Graduation can look like different things for different startups, but generally speaking, it means you’re no longer in the “high-risk” zone.

You might be wondering what exactly this “high-risk” zone is. Well, it’s the period of time when a startup is trying to find its footing. It’s experimenting with different models and figuring out what works and what doesn’t.

Unfortunately, this is also the time when most startups fail. In fact, according to Entrepreneur, most businesses are going to die within the first five years of opening their doors.

So when a startup becomes profitable, it means they’ve figured out a way to make money and sustain its business. It’s a huge milestone and usually signals that the company is here to stay.

Of course, this isn’t always the case. Some startups might become profitable and then quickly fizzle out. But generally speaking, profitability indicates that a company is on the right track.

It’s a good thing. Hell, it’s a great thing. But once you graduate from the startup zone, your brand will face new challenges and obstacles. We’ll get into some of those a bit further into today’s post.

Another way to think about it is that a startup becomes a company when it’s no longer just an idea. It’s something tangible that people can use or purchase. And it has a team of passionate people working to make it successful.

Let’s Talk Scaling

company growth chart

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Another factor to consider is the scale of your company. Startups are typically small businesses with relatively small teams. They might have a few employees or even just a founder or two.

As the company grows, it will likely add more employees and expand its operations. At this point, it’s no longer a startup — it’s a small business. It may even jump from startup to medium business seemingly overnight.

Of course, there’s no hard and fast rule for when this happens. It really depends on the company and its goals. Some startups might stay small, while others quickly outgrow the startup label.

Profit Is Always the Goal

This leads us to our next point: profitability. Startups are often unprofitable in the early years as they invest in growth. They might pour money into marketing or product development instead of generating revenue.

It is perfectly normal and expected. In fact, most startups don’t become profitable until later in their journey. However, don’t let yourself become distracted. Keep your eyes on the prize.

via GIPHY

There comes a time when a startup needs to start generating revenue and becoming profitable. Usually, this occurs when they make the transition from startup to company.

Of course, there are always exceptions to the rule. Thanks to the good ole internet, we live in an age where sometimes things happen faster than they should. Some startups might never become profitable or might take much longer to do so. Others might become profitable very quickly. It really depends on the business and its goals.

You’re Buying Up the Competition

Another sign that you’re no longer a startup is if you’re acquiring other startups. This usually happens when you have the capital and resources to find other players in the game and buy them out. If you’re the only player in town, you’re the best player in town.

It’s a way for startups to grow their business by quickly adding new products or services. And it can also help them enter new markets or expand their reach.

Of course, not all startups will acquire other businesses. But if you’re doing it regularly, it’s a sign that you’re no longer a startup.

The Market Loves Your Products

When a startup first starts out, its products are often experimental. They’re trying to figure out what works and what doesn’t. It makes sense. A company doesn’t always know its place in this world until it finds an identity and creates products the market needs.

But as time goes on, they need to start making products that fit the current market. They need to be more focused and have a clear vision for their business.

Otherwise, they’ll quickly become outdated and will struggle to compete.

You’re Taking a Step Back

company politics

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As a company grows, it often becomes more bureaucratic. This is because there are more people involved and more moving parts.

Bureaucracy can be a good thing or a bad thing. It can help to keep things organized and running smoothly. But it can also make the company less agile and responsive to change.

If you’ve noticed that your company is becoming more bureaucratic, it’s a sign that you’re no longer a startup.

Is Your Company Still a Startup?

How many times have you seen a baby trying to stand up because they want to walk? They want it so bad. But their muscles and bones aren’t quite ready.

Companies can be the same way. Just because your business is growing, it doesn’t mean it’s no longer a startup. There are still some key indicators that you’re in startup mode.

Still Testing? That’s Ok

Many startups spend a lot of time testing different markets. They’re trying to figure out where they fit in and how to serve their target audience best.

While this is perfectly normal and necessary for the early stages of a business, it’s not something that companies do for very long. To be clear, companies will always do testing, but as they progress, they need to do less and less.

Once a company has found its niche, it will focus its efforts on serving that market. So if you’re still in this stage, you’re a startup. And that’s ok.

Your Branding Is a Work in Progress 

brand growth

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Take a look at the above brands. If you don’t know them all, you damn sure know most of them. You can probably even draw the logo of some of them. That’s quality branding.

If you’re still working on this stage of your development, you are a startup. This includes things like your logo, website, and marketing materials.

You might also find that you’re constantly changing your branding as you test different markets and audiences. Going back to the people analogy, you’re probably a young adult right now. You’re trying to find yourself, looking in the mirror, and asking, “Who am I?”

But as you settle into your niche, your branding will become more consistent.

Now Hiring

unhappy employee

(source) – altered with Canva

Above is a scene that we see pretty often in the world. Understaffed companies with tired and underpaid employees. But if you have a long line of talent beating down your door, claiming they’re the right person for your company, that’s a really good sign.

 

But it also means you’re still a startup. A full-fledged company has these people in place, and they’ve had their positions for years.

In the early stages of a business, hiring employees who are integral to the company is essential. They need to be passionate about the industry and their role in it.

They should also be willing to wear many hats and take on whatever tasks are necessary to help the business succeed.

Pack Your Stuff. We’re Moving Up

There are many benefits to moving beyond the startup stage. Here are just a few that impact most companies, regardless of industry.

Employee Retention is Easy

As a startup, it can be difficult to attract and retain qualified employees. Many people want to work for established companies with stable operations.

But as you move beyond the startup stage, you’ll be more appealing to qualified candidates. They’ll see you as a more stable and reliable company.

You Have More Money

As a startup, you might be working with a limited budget. But as you move beyond the startup stage, you’ll have more money to work with, especially if you’ve completed multiple funding rounds.

You can now invest in better-quality products and services. It will also allow you to hire more qualified employees.

Build Brand Awareness

In the early stages of a business, it can be challenging to cultivate brand awareness. But as you move beyond the startup stage, you’ll have more resources to invest in marketing and advertising. 

Also, you have a much clearer idea of who you are as a company. So does your target audience.

The Factors That Change Your Company

A number of factors will decide when a startup transitions into a company. Here are just a few:

You’re Maturing as a Brand

One of the most critical factors is growth and development. As a startup grows, it will look more like a company. It’ll just kind of have that feel to it. The new car smell is gone. Now it’s a reliable grocery hauling machine.

Your Model is Working

Another important factor is your business model. If you’re still in the process of testing different models, likely, you’re still a startup.

But if you’ve found something magical that works well and is profitable, you’re probably ready to transition into a company.

Funding Stages Are a Sign

funding stages

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The final factor is funding. In the early stages of a business, it’s common to rely on personal savings or investments from friends and family.

Many startups go through multiple rounds of seed investing. Depending on which round you’re in will impact how that money is spent.

You’re still a startup if you’re still relying on a day job. But if you’ve secured outside funding on more than one occasion, you’re probably ready to transition into a company.

Startups: Breaking It Down

via GIPHY

A startup is a company or organization in its early stages, characterized by high uncertainty and risk.

Startup founders are often entrepreneurs who have a vision for a new product or service. They typically have limited resources and are seeking to validate their business model.

There is no single definition of a startup, but some common characteristics exist.:

SMBs Are Not Inherently Startups

It’s important to note that not all small businesses are startups. Small businesses are companies with fewer than 500 employees.

On the other hand, startups have high growth potential and a focus on innovation. They have a shorter timeline than small businesses to achieve profitability or become “unicorns” (startups with a valuation of over $1 billion).

Is Your Business a Unicorn?

Unicorn startups are companies that have achieved a billion-dollar valuation. Here are some signs that a startup might be on the path to becoming a unicorn.

Unicorns

(source)

They’re Disruptive

A disruptive startup seeks to bring about change in an industry or market by introducing a new product or service that has the potential to be game-changing. 

In many cases, disruptive startups can succeed where larger, more established companies have failed because they don’t have the same constraints and are more agile and adaptable.

One of the most famous examples of a disruptive startup is Uber, which disrupted the taxi industry by introducing a new way of hailing cabs and paying for rides.

Disruptive startups often have a mission to change the world, and passionate and visionary entrepreneurs usually lead them.

They’re Techy

As a startup, it is essential to be tech savvy. Technology is a crucial part of any business, and startups need to be able to use it to their advantage. There are several reasons why being tech savvy is essential for startups. First, technology can help you save time and money.

Automating tasks and using cloud-based applications can free up your time to focus on more important things. Additionally, technology can help you reach new customers and markets. With the help of social media and other online tools, you can connect with potential customers all over the world.

Finally, technology can give you a competitive edge. You will be ahead of the competition if you can use technology to improve your products or services. 

They’re Customer Focused

Having a customer-forward approach means that you need to understand your customer’s needs and desires and build your product or service around those factors. 

It can be easy to get caught up in the details of your business and lose sight of the customer, but it is important to keep them at the forefront of your mind.

After all, without customers, your business will not survive. There are a few key ways to stay focused on your customers. 

First, make sure that you have a clear understanding of who your target market is. Second, constantly communicate with your customers and get feedback on what they want and how you can improve.

Finally, always be willing to pivot if necessary to serve your customers better. By following these tips, you can ensure that you always put your customers first.

They’re Efficient

As a startup, efficiency is key. Every minute counts when you’re trying to get your business off the ground, so it’s important to make the most of your time and resources.

One way to do this is to streamline your processes and eliminate any unnecessary steps. This can help you save time and money, which can be critical for a new business. Additionally, being efficient can help you attract investors and customers.

Partners and clients are more likely to want to work with an organized startup, so they can be confident that their investment will be well-spent. 

They’re Growth-Driven

A growth-driven startup is a company that is focused on achieving rapid growth. Achieving this growth can be through a variety of means, such as developing innovative products or services, entering new markets, or expanding into new territories.

Growth-driven startups often have a strong culture of innovation and risk-taking, and they are usually led by visionary entrepreneurs willing to take bold risks to achieve their goals. 

While not all startups are growth-driven, those that are often reaping the rewards of their efforts in the form of significant financial and/or market success.

At urban monks, the most common trait we see with startups that become successful companies is they operate with fearlessness and tenacity. These founders and CEOs refuse to accept failure as an option. As we say in Latin, valenter volenter – meaning strongly and willingly.

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