What is a startup?
To explain what a startup is, people often begin by saying it’s a young company that is starting up. While this statement is true, it is not limited to this definition alone. So what is a startup? Unlike a traditional company, a startup differentiates itself by looking for its business model, creating a business model based on its customers, or testing its market.
Definition of a startup
A startup company does not fit into a pre-designed business model. A company can be called a startup if it seeks to enter a market by looking for a different economic model — one that is more profitable or innovative compared to other players in the sector. Its objective is to find a business that is profitable to it, on which its strategy will be oriented. A company can be defined as a startup according to different criteria, such as financial needs — on paper, project leaders start from scratch, but require a significant amount of funding to carry out their projects. Innovation, the search for new technology — the company is looking to innovate in a field of activity, or completely reinvent the way the market works. High projected growth — the innovation is such that the projected growth is very high, and will involve a profound change in the company over time. Some markets and sectors of activity develop largely through startups. This is the case with fintech, also known as financial technology.
How do I create and develop a startup?
Successful startups often begin with an observation. For example, their target industry may have a market saturated by leaders. In this case, the entrepreneur or entrepreneurs will then consider and explore a different economic model. Innovation can also be a factor that sets them apart, and will enable the startup to establish itself in its target market. There are different ways and structures that can help create a startup. These include incubators, accelerators, business incubators, and facilitators like specialised experts. In France, there is a movement for startups: French Tech. This ecosystem includes startups, decision-makers and investors — and it works to promote French projects around the world.
How are startups financed?
How a startup can be financed depends on several factors, such as the project itself, its financial needs, and the objectives it aims to achieve. There are several ways of financing a startup, some of which are listed below.
Startup ambitions are often very high, and well above the financial means available to the company. In this scenario, the company can turn to investors, and organise the fundraising it needs to achieve its objectives. If investors see potential in the project, the company then has equity financing to recruit staff and develop tools, for example. This fund ensures that the company does not incur debt as soon as it is launched.
Startup incubators can be private or not-for-profit organisations, via public bodies. In France, large private companies have created their own incubators to support startups. They provide support in several ways — this may involve financial support, training, experience or simply the provision of physical premises. The company providing the incubator can also contribute its expertise in its field.
Generally speaking, a business angel (otherwise known as an angel investor) is someone from the world of entrepreneurship. The individual has large amounts of money, and wants to invest it in innovative projects. As a natural person, the business angel is an investor who will seek startups with growth potential. They then provide a financial boost, to support the company in achieving its goal. A business angel is often specialised in an economic sector, which also enables them to evaluate the potential of the organisation requesting support. As a company founder, you can meet a business angel and deliver a quick, effective project pitch. To do this, there are often networks divided by business area.
Crowdfunding has several advantages. A project owner can involve their audience or future customers, by integrating them into their creation process. On the one hand, contributors provide money to support a project they see a need for —and they also consider the final product or service. On the other hand, the creator has a source of money that will be used to finance their innovation while targeting, testing and uniting their community. A great advantage of crowdfunding is that it can be a good way to publicise and widen an innovative concept.
While raising funds can help start the business with a lot of financial resources, equity investments are an important alternative to keep in mind. Depending on its capabilities, a startup’s associates may finance the company’s progress, while waiting for an economic model to be defined or a fundraising campaign to be launched. The investment may also be of another nature: premises, hardware, etc.
Startups and scaleups: what is the difference?
The difference between a startup and a scaleup lies mainly in the company’s purpose. Whether or not the startup’s aim is to establish a business model in an innovative market, the scaleup market is quite different. The essence of this type of company lies in the next stage, i.e. after implementing a profitable business model. Its objective will be to expand its business, as well as increase its turnover and number of employees. This way, it can expand nationally, then internationally, and finally reach its market globally and become a leader.
We can therefore consider a scaleup to be a logical continuation of startup, if the company’s ambitions go in this direction.