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