What The Hell Is A Startup Anyway?

Next Story

United And Orbitz Sue “Hidden Cities” Flight Search Engine Skiplagged

If you regularly read technology media, and I honestly can’t recommend it, you will run into occasional references to “startups.” Many consider startups to be small companies determined to grow quickly in the hopes of becoming the next passé giant whose corporate campus costs so much to maintain that it eventually has to stop serving chilled sake by robot on Thursdays.

Everyone has their own definition of just what a startup is, and nearly everyone is wrong.

But what the hell is a startup? I ask because it seems that a wide class of corporations are regularly assigned Startup Status that do not deserve it. Is Uber a startup? Of course not. Is the company that your crazy uncle started in the basement to help people better glue the fins on their toy rockets a startup? No, that’s a failure waiting to happen.

Is the 14-person, one-year-old technology firm that has raised a total of $437,000 and burning cash monthly to help it keep up its sequential quarter revenue growth a startup? Yep.

There is copious gray room at play here, of course, so I am here to help.

Everyone has their own definition of just what a startup is, and nearly everyone is wrong. I asked Twitter the question, and received a large quantity of answers: Is it a test of profitability? Age? Management structure?

(I asked a few venture capitalists what they thought, and Christopher Calder of Epic Ventures raised the management question, Matt Murphy of Kleiner Perkins noted the profitability point, and Rafael Corrales of Charles River riffed on the growth point.)

In the face of that, Amazon loses lots of money, Uber is more than half a decade old and yes, even startups can have comically rigid leadership structures in their early stages. So none of those suggestions work.

I think that we can instead rely on the 50, 100 or 500 rule, which I just made up. Here’s the term sheet: If your company has, or is any of the following, you have to hang up your Startup Uniform, and realize that you are just another technology company either hunting for or actively avoiding an IPO:

  • $50 million revenue run rate (forward 12 months);
  • 100 or more employees;
  • Worth more than $500 million, on paper or otherwise.

So, if you’re worth $499 million, have 99 employees, and are on a current, forward-year, top-line run rate of $49 million, then congrats — you are still a startup. (Actually, if that is you, points for being valued at 10x future revenue, and having nearly half a million dollars in per-employee revenue.)

Those three numbers — 50, 100 and 500 — are useful as durable, if general guidelines as to what a startup in fact is.

Let’s take a few examples for fun. Mattermark and Buffer are both startups. Mattermark’s recent post-money valuation, revenue, and headcount — $25 million, $1.5 million annual recurring revenue, and 27 employees — all hit the mark. Buffer, worth $60 million after its last round, has a current revenue run rate of $4.8 million and has 30 employees. It makes the cut!

But Xioami, Uber, and the rest of the unicorns are no longer startups. They are unicorns. What is a unicorn? A post-2010 tech company that was raised in the shadow of quantitative easing and low interest rates when bored capital let private companies not go public — consider it something of a corporate adolescence. Oh, and they are worth a billion or more on paper.

But even if our unicorns are business tweens, they are still not startups.

Finally, who thought that a company with a valuation of $40 billion could be a startup? The normal definitions of public companies’ various sizes are as follows:

So, by normal, public market statistics, not only is Uber’s $40 billion valuation far and above what a “startup” can maintain, according to our rule, it actually places the company among the most valuable public companies, in terms of classification. Lots of companies grow quickly. Not all are startups.

When you go to bed tonight, repeat the mantra: 50, 100, 500. You are welcome.

Featured Image: Andrey_Popov/Shutterstock