Types Of Start-ups

Once upon a time, the humble start-up was treated as a small business. However, this comparison proved to be ineffective because of the many organizational and conceptual differences between the two.

While small businesses run according to a fixed business model, the start-up seeks to identify a scalable and repeatable business model by:

Providing a product vision with defined characteristics.
Creating a series of business models according to customers, distribution, and finances.
Understanding which model is most suitable based on predicted customer behavior.

As start-ups became more fashionable, they were commonly associated with tech companies run by nerds in Silicon Valley. It wasn’t until guru Steve Blank defined six major start-up types that people realized how varied they could be. They are also present in many industries, including marketing, advertising, insurance, education, real estate, and healthcare.

customer-development — Customer development is a formal process of identifying potential customers and determining how to meet their needs using testable hypotheses. Entrepreneur and business professor Steve Blank highlighted the Customer Development Manifesto principles in The Startup Owner’s Manual as the core principles for modern startups.

With all of that said, let’s take a look at each of the six types below.

Table of Contents

Lifestyle start-ups

As the name suggests, the founders of lifestyle start-ups are those who desire a specific lifestyle. They are the founders who follow their passions and make a living from them.

These start-ups are common in coastal regions, where individuals run surf or dive schools to pay the bills and essentially, achieve a greater work-life balance. Visual artists, freelance programmers, and meditative healers also run lifestyle start-ups.

Small business start-ups

Small business start-ups represent a high proportion of start-up entrepreneurs. Think of your local hairdresser, butcher, baker, coffee shop, travel agent, or electrician. They can also be less traditional. For example, 24 Hour Tees is a “mom and pop shop” bringing improved customer service and automation to the custom t-shirt industry.

Since these start-ups are designed to meet basic living and operating expenses, they are not typically scaled by their owners. Most are founded so they can avoid working for someone else.

Capital is raised from personal savings or in some cases, a bank loan. This suits the small business start-up owner who is happy to grow at their own pace without pressure from investors.

Scalable start-ups

Earlier we mentioned the archetypal image of a start-up based in Silicon Valley. These are typically scalable start-ups or tech companies based in other innovation hotspots such as Shanghai, New York, or Israel.

They are also typically founded by visionaries who want to disrupt the world with innovation and profit accordingly. Elon Musk and Steve Jobs are two classic examples.

Buyable start-ups

In a buyable start-up, a small team builds a business from nothing and then sells it to a bigger industry player. In many instances, the business is unprofitable but has a great product requiring extra funding to build momentum.

Like scalable start-ups, buyable start-ups are also prevalent in the tech industry.

Large company start-ups

Large company start-ups are exactly that – start-ups that are owned by large corporations.

Tech giants commonly restructure or acquire a buyable start-up when they need to enter a new market. Continuous innovation resulting from technological change is also increasing the need for large companies to adopt a start-up mentality to remain relevant.

Google’s Android operating system is a good example of a large company having to adapt to stay relevant.

Social start-ups

These are start-ups founded with the express goal of making the world a better place and are sometimes referred to as social entrepreneurship start-ups. Here, positive social impact is equally as important as turning a profit. In some cases, social startups may be non-profits and scale for the sake of philanthropy only.

Microlending platform Kiva is a good example of a social start-up. The company has crowdfunded more than $1.58 billion in loans to help disadvantaged communities and entrepreneurs thrive.

Key takeaways:

Start-ups were historically compared to small businesses and commonly associated with small tech companies based in Silicon Valley. However, start-up guru Steve Hank defined six main types of start-up encompassing many sizes, industries, and revenue models.
Lifestyle start-ups are run by those who want to monetize their passions, while small business start-ups are arguably the most common. They represent bakers, butchers, cafes, and electricians, among others.
Large company start-ups are becoming increasingly prevalent as corporations adapt to disruption caused by technological innovation. Social start-ups act to make the world a better place and often encompass non-profit organizations.

Key Highlights

Introduction and Distinction: Start-ups were initially compared to small businesses, but the two have distinct organizational and conceptual differences.
Start-up Objectives and Process:
- Start-up Goals: Start-ups aim to identify a scalable and repeatable business model.
- Process Steps:
  - Define a product vision with specific characteristics.
  - Create multiple business models based on customers, distribution, and finances.
  - Determine the most suitable model based on predicted customer behavior.
Diverse Nature of Start-ups: Start-ups are not limited to tech companies in Silicon Valley; they exist in various industries like marketing, insurance, real estate, and healthcare.
Customer Development:
- Definition: Customer development is a formal process of identifying potential customers and addressing their needs through testable hypotheses.
- Principles: Steve Blank’s Customer Development Manifesto outlines core principles for modern startups.
Six Types of Start-ups:
- Lifestyle Start-ups: Founded by individuals pursuing a specific lifestyle, often involving passions like art, surfing, or healing practices.
- Small Business Start-ups: High proportion of start-up entrepreneurs, including local businesses like cafes, travel agents, and freelancers.
- Scalable Start-ups: Tech companies with disruptive visions, often based in innovation hubs like Silicon Valley or New York.
- Buyable Start-ups: Teams build and sell businesses with potential for growth, especially in the tech industry.
- Large Company Start-ups: Owned by large corporations seeking innovation and adaptation to new markets.
- Social Start-ups: Founded to create positive social impact, often non-profit and focused on philanthropy.
Examples:
- Lifestyle: Surf or dive schools, visual artists, freelance programmers, meditative healers.
- Small Business: Local shops, service providers, innovative businesses like 24 Hour Tees.
- Scalable: Tech giants led by visionaries like Elon Musk and Steve Jobs.
- Buyable: Tech start-ups with great products requiring funding to gain momentum.
- Large Company: Corporations entering new markets or adapting to technological change.
- Social: Start-ups striving for positive impact, including non-profits like Kiva.
Key Takeaways:
- Start-ups vary widely in size, industries, and revenue models.
- Different types include lifestyle, small business, scalable, buyable, large company, and social start-ups.
- Start-ups can pursue profitability, innovation, impact, or other goals, leading to diverse strategies and outcomes.

Component	Description
Definition	Types of Start-ups categorize new businesses based on their nature, industry, business model, and objectives. These categories help investors, entrepreneurs, and policymakers understand the unique features and challenges of each start-up type.
Purpose	– To differentiate and classify start-ups based on their characteristics. – To tailor support, funding, and resources to the specific needs of each start-up category.
Common Categories	1. Tech Start-ups: Focused on developing and selling technology-based products or services. 2. Social Impact Start-ups: Driven by a mission to address social or environmental issues. 3. E-commerce Start-ups: Operating online marketplaces for products or services. 4. Lifestyle Start-ups: Created to support the founders’ desired lifestyle. 5. Scalable Start-ups: Aim to grow rapidly and often seek venture capital.
Additional Types	– Biotech and Healthcare Start-ups: Innovating in the fields of biotechnology and healthcare. – Fintech Start-ups: Focused on financial technology and services. – Cleantech Start-ups: Developing clean and sustainable technologies. – Retail Start-ups: Establishing physical retail stores or franchises. – Hardware Start-ups: Building physical products and devices. – AI and Machine Learning Start-ups: Applying artificial intelligence and machine learning to various industries.
Characteristics	Each type of start-up has unique characteristics, such as technology-driven innovation for tech start-ups or a strong social mission for social impact start-ups. These characteristics influence their business strategies, funding requirements, and target markets.
Funding Challenges	Different start-up types face distinct challenges when seeking funding. For example, tech start-ups often require substantial capital for research and development, while social impact start-ups may rely on grants and impact investments.
Examples	– Tech Start-up: Uber, a ride-sharing platform. – Social Impact Start-up: TOMS, known for its one-for-one shoe donation model. – E-commerce Start-up: Amazon, one of the world’s largest online retailers. – Lifestyle Start-up: Lifestyle bloggers or niche e-commerce stores. – Scalable Start-up: Airbnb, an online marketplace for lodging.
Flexibility	Start-up types are not rigid categories, and many businesses may fit into multiple classifications. A business can evolve and change its classification over time as it grows and adapts to market conditions.

Related Frameworks, Models, or Concepts	Description	When to Apply
Lean Startup	The Lean Startup methodology emphasizes rapid iteration, experimentation, and customer feedback to develop and launch products or services efficiently. Lean startups aim to minimize waste and optimize resources by testing hypotheses, building minimum viable products (MVPs), and iterating based on validated learning. By adopting lean startup principles, entrepreneurs can reduce the risk of failure, validate market demand, and iterate toward product-market fit more effectively.	Consider Lean Startup when launching a new venture or developing a new product or service. Use it to test assumptions, validate hypotheses, and iterate rapidly based on customer feedback to achieve product-market fit and minimize the risk of failure. Implement Lean Startup as a framework for resource-efficient innovation, customer-centric development, and iterative experimentation to accelerate growth and maximize value creation.
Business Model Canvas	The Business Model Canvas is a visual framework for describing, analyzing, and designing business models. It consists of nine building blocks, including customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure. By mapping out key elements of the business model, entrepreneurs can identify opportunities for innovation, revenue generation, and value delivery.	Consider Business Model Canvas when designing or evaluating business models for new ventures or startups. Use it to visualize and explore key elements of the business model, identify potential revenue streams, and assess the feasibility and viability of the business concept effectively. Implement Business Model Canvas as a framework for strategic planning, business model innovation, and value proposition design to achieve sustainable growth and competitive advantage.
Blue Ocean Strategy	Blue Ocean Strategy is a strategic framework that focuses on creating uncontested market space and making competition irrelevant. Blue ocean strategy involves identifying and tapping into new market opportunities by offering unique value propositions to customers. By innovating and differentiating in ways that set them apart from competitors, startups can create blue oceans of uncontested market space, driving growth and profitability.	Consider Blue Ocean Strategy when seeking to differentiate your startup and create new market opportunities. Use it to identify untapped market segments, develop innovative value propositions, and redefine industry boundaries to unlock growth and disrupt existing markets effectively. Implement Blue Ocean Strategy as a framework for strategic innovation, market creation, and value innovation to achieve sustainable competitive advantage and market leadership.
Platform Business Model	The Platform Business Model leverages technology to facilitate interactions and transactions between multiple groups of users. Platforms create value by connecting producers and consumers, enabling transactions, and facilitating exchanges of goods, services, or information. By building scalable and networked platforms, startups can capture network effects, scale rapidly, and create ecosystems of value that drive growth and competitiveness.	Consider Platform Business Model when designing or scaling a startup that relies on network effects and ecosystem dynamics. Use it to create platforms that facilitate interactions and transactions between users, leverage network effects to drive growth, and build sustainable competitive advantages based on platform dominance and ecosystem lock-in. Implement Platform Business Model as a framework for platform design, growth strategy, and ecosystem development to achieve network effects and scale effectively.
Disruptive Innovation	Disruptive Innovation is a concept introduced by Clayton Christensen, describing innovations that create new markets or value networks and eventually disrupt existing industries or markets. Disruptive innovations typically start by addressing the needs of underserved or non-consumers before expanding to challenge incumbents. By focusing on disruptive innovation, startups can identify new market opportunities, challenge incumbents, and gain market share through innovation.	Consider Disruptive Innovation when seeking to challenge incumbents and disrupt existing markets or industries. Use it to identify underserved or non-consumers, develop disruptive technologies or business models, and create new value propositions that redefine industry standards and reshape market dynamics effectively. Implement Disruptive Innovation as a framework for strategic differentiation, market disruption, and sustainable growth to achieve competitive advantage and market leadership.
Agile Development	Agile Development is an iterative and incremental approach to software development that emphasizes flexibility, collaboration, and customer feedback. Agile methodologies, such as Scrum or Kanban, enable startups to deliver value quickly, adapt to changing requirements, and respond to customer needs effectively. By adopting agile development practices, startups can accelerate product development, improve quality, and enhance customer satisfaction.	Consider Agile Development when building software products or digital solutions for your startup. Use it to prioritize features, break down work into small, manageable increments, and iterate based on customer feedback to deliver value early and often. Implement Agile Development as a framework for collaborative, adaptive, and customer-centric product development to achieve rapid innovation and market responsiveness effectively.
Bootstrapping	Bootstrapping is a method of funding a startup using personal savings, revenue generated from early customers, or other non-traditional sources of financing. Bootstrapped startups aim to operate lean and efficiently, minimizing external dependencies and maximizing self-sufficiency. By bootstrapping, entrepreneurs retain control over their businesses, avoid dilution, and build sustainable, profitable ventures over time.	Consider Bootstrapping when launching a startup with limited resources or access to external funding. Use it to fund your venture using personal savings, revenue from early customers, or other non-traditional sources of financing, and operate lean and efficiently to maximize self-sufficiency and sustainability. Implement Bootstrapping as a strategy for preserving equity, retaining control, and building a resilient, profitable business without relying on external investors or financing.
Lean Canvas	Lean Canvas is a one-page business model template adapted from the Business Model Canvas, designed specifically for startups and entrepreneurs. It focuses on key elements of the business model, including problem, solution, key metrics, unique value proposition, unfair advantage, customer segments, channels, revenue streams, cost structure, and key activities. Lean Canvas helps startups validate their business ideas, iterate quickly, and communicate their value proposition effectively.	Consider Lean Canvas when developing or refining your startup’s business model. Use it to articulate key elements of the business model, identify assumptions, and test hypotheses systematically to validate market demand, achieve product-market fit, and iterate toward a scalable and sustainable business model effectively. Implement Lean Canvas as a tool for lean startup validation, rapid experimentation, and iterative business model development to minimize risks and maximize chances of success.
Customer Development	Customer Development is a methodology introduced by Steve Blank, focusing on understanding customer needs, validating hypotheses, and iterating product-market fit. Customer development involves testing assumptions, gathering feedback, and iterating based on customer insights to build products or services that resonate with target customers. By prioritizing customer development, startups can reduce the risk of failure, accelerate growth, and build products that customers love.	Consider Customer Development when validating your startup idea or developing your product or service. Use it to engage with customers early and often, gather feedback, and iterate based on customer insights to achieve product-market fit and build a sustainable, customer-centric business. Implement Customer Development as a framework for systematic hypothesis testing, customer validation, and iterative product development to minimize risks and maximize value creation effectively.
Venture Capital Financing	Venture Capital Financing involves raising capital from external investors, such as venture capital firms, in exchange for equity stakes in the startup. Venture capital funding is typically used to finance early-stage startups with high growth potential and scalability. By securing venture capital financing, startups can access capital to fuel growth, expand operations, and accelerate market penetration.	Consider Venture Capital Financing when seeking external funding to scale your startup rapidly and capitalize on market opportunities. Use it to attract investment from venture capital firms, pitch your business idea or growth strategy, and negotiate terms that align with your long-term vision and objectives effectively. Implement Venture Capital Financing as a funding strategy for fueling growth, expanding market reach, and achieving scalability and market leadership in competitive industries.