Startups - FAQ

27+ Frequently Asked Questions About Startups

What is a startup ecosystem and how do they remain sustainable? We have gathered the most frequently asked questions regarding startups in one easy to digest guide. Maybe you are working in a startup and want to brush up on the lingo or are piqued by professional curiosity to explore more about startup culture and innovation. Let’s discuss.

Startups: The basics

 

What is a startup?

There is no one commonly agreed definition of what a startup is. StartupBlink, a research center that maps ecosystems, defines startups to be able to quantify and measure their rankings as: “Any new business that applies an innovative solution. The solution can be either technological or a unique business model” Another common definition comes from Investopedia as a “company that’s in the initial stages of business” At the risk of complicating things, startups can also be further categorized or defined by the number of employees, revenue and years of operation. Based on this, different entrepreneurs and business developers have proposed different criteria for when a startup ceases to be called a startup.

What is a tech startup?

As the name suggests, a tech startup is a startup that is focused on technology-based products or services. Due to the nature of our modern world and the involvement of technology most startups are thought of as tech startups. However, technology on its own is not a defining factor of a startup; innovation and novelty are.

Is Amazon a startup?

The answer is, it depends on the definition! Senior Editor of TechCrunch, Alex Wilhelm, has provided a three-point criteria system based on hard numbers. Automatically, any startup that exceeds (1) $100 million in revenue, (2) with more than 500 employees, and (3) a valuation of $2.5 billion or greater, is not thought of as a startup. Based on these numbers, then the answer would be, “No, Amazon is not a startup.” But others think that the culture and ethos of Amazon has, even after all these years, remained startup-like, even if it has reached a level of global domination. Either way, Amazon was a startup in the early stages, with the initial investment provided by Jeff Bezos’ family but most people would not characterize it as one now.

How do you start a startup?

The three necessary components to start a startup are an idea, investment and time. You will need to be working on all fronts simultaneously, find the right contacts and the support systems necessary to secure funding or be able to bootstrap your startup yourself. (bootstrapping = using your own savings or those of close friends and family and not relying on outside investment)

What do startups need to know?

When it comes to what you need to know, basic business principles apply. From a business-centric viewpoint you will need to know your target audience, conduct market research, find investors, register and pick a location (you can also choose to be location independent), and develop a product that stands out from the market. As a startup, you will also need to develop your company’s culture, stay passionate and true to your focus and learn when to take feedback and when to ignore it. Overall, what you need to know is that startups are a lot of hard work and require patience and determination to succeed in.

Why do startups fail?

There are myriad reasons why startups fail and most of them can be prevented. The reason is simply that not all startups develop a product the market needs or wants to reward financially. We also see the same “traditional” problems affecting other businesses such as lack of money, ineffective team management, bad marketing, pricing or better competitors.

Why do startups succeed?

Startups that manage to become successful are prepared, have a sensible business model and can position themselves within a market that offers long term exponential growth.

Which type of startup should I start in which country?

The different startup ecosystems (more on this below) around the world have some natural strengths towards certain industries or verticals. You can research the strengths and key players of the ecosystem in your country or city to make sure you have access to support systems, mentors and incubator or accelerator programs that will get you running. For example, Vancouver is over performing in EdTech, ranking at 15th, in comparison to its overall global ranking of 37. While, Nationally, Estonia is overperforming in Transport, ranking at 2, in comparison to its overall global ranking of 11. StartupBlink PRO offers access to detailed reports and extensive analysis data on startup vertical rankings to support your research and decision-making process. Find out more here.

What are the costs of a start-up?

This all depends on your business model and how fast you want to scale. The initial investment will go towards your product development, the members of the team needed to execute the idea and the cost of the technology. As you grow, you will need to account for location costs, more research, and promotion. The idea research, business plan and initial product development will need to be underway before you seek investors.

How to obtain startup funding/capital?

There are a few different ways to get funding for your startup: bootstrapping (your own savings, friends and family), angel investors, venture capital, government loans, government subsidies and crowdfunding. You will need to pick an option based on the maturity of your business, the initiatives or grants available in your location and whether or not you want to rely on outside investors.

What is venture capital?

Venture capital is a type of private equity and one of the ways startups with good potential for growth can receive funding. Venture capitalists (VC’s) manage pools of money called funds and they don’t necessarily invest their own money. This is in contrast to angel investors where the capital is provided by a certain individual. VC’s may also require a more active role in the running of your business and key operations.

What types of venture capital are there?

VC’s may offer one or multiple types of capital. These are broadly broken down and categorized based on how far along you are with development. The first two, “seed capital” and “startup capital” are rare to come by due to how early on in the product development and market phase these startups are. Next, we have “early-stage capital”, where there is already a small management team in place but you need to increase exposure and generate more sales. The other types of venture capital are “expansion capital” and “late-stage capital” where a company is already well-positioned but requires additional funding for scaling operations.

What are the startup funding stages?

There are 7 major startup funding stages that every entrepreneur or startup developer needs to be aware of. This presents a linear progression for successful startups but not every startup will manage to proceed to the next stage.

  • Pre-see funding – funding from friends and family
  • Seed funding – angel investors, incubators and early-stage funding VC’s
  • Series A funding – VC’s, accelerators
  • Series B funding – VC’s (late-stage)
  • Series C funding – VC’s, private equity firms,
  • Series D funding (optional if needed)
  • IPO – Stock Market Launch – open to the public

What is a Startup Ecosystem?

Startups grow, scale and operate within an interconnected and dynamic environment called an ecosystem. It is no different than natural ecosystems in that it encapsulates how a variety of moving players interact and co-exist. When a startup ecosystem is working together harmoniously, promoting, collaborating and attracting new talent and opportunities, then the ecosystem is well-positioned for future growth.

Where are the world’s largest startup ecosystems?

The StartupBlink rankings report categorizes ecosystems by region, like the San Francisco Bay Area, which is a cluster of ecosystems including nearby cities such as San Jose and Palo Alto. You may also look at ecosystems of a country or a continental region (Asia, Europe etc). Either way, the USA and specifically the ecosystem of the San Francisco Bay Area has the largest representation of startups and as such can be considered one of the largest in the world.

Where are the world’s best startup ecosystems?

This depends on who is answering and what metrics they use to arrive at a conclusion. StartupBlink has developed an algorithm that incorporates and quantifies the quality, quantity and business environment of each ecosystem, among other measures, for their annual Global Report. Υοu can access up to date rankings on the world’s best startup ecosystems on the StartupBlink Map here. In the last few years, the top-ranking ecosystems worldwide on a city level are those of San Francisco Bay Area, New York, London, Boston Area, and Los Angeles Area.

How will a startup ecosystem be sustainable?

The key to ecosystem sustainability is the smooth and harmonious co-existence of all the components. In addition to the startups themselves, this includes the educational providers, incubator and accelerator programs, investors and funding organizations as well as private and government officials. It is up to each member to contribute to the development and well-being of the ecosystem whether that is through promotions, funding, mentoring services, events, or networking. It all comes down to collaboration.

How can a startup disrupt a business/market?

Startups are by definition a disruptive and innovative solution to a problem. While the solution may already exist, startups are tasked with approaching the situation and solving the problem, in a way that is faster, easier, cheaper and altogether just better. This is often achieved through the use of technology. Startup developers may also consider a business model innovation approach that does not require creating new technology but identifying what existing product can be improved to fit the needs of an existing pool of customers.

Developing Startup Ecosystems

Why are startups important for the economy?

Startups just like other small businesses are incredibly important for the regional and global economy and growth. For starters, even though startups begin as small businesses most aim to scale nationwide or even internationally. These are the startup giants that of course have potential to create hundreds of thousands of job opportunities. On a smaller scale, but no less important, startups are research generation machines, facilitate connections with other entrepreneurs globally and drive up production of goods and distribution of services.

Startups and innovation: do they always go hand in hand?

Yes! For the most part, startups, or at least successful startups are synonymous with innovation. Even non-successful startups though can introduce innovative solutions and approaches that simply did not appeal to a vast number of customers at the time.

Startups and COVID-19: what is the impact of COVID-19 on startups?

The Covid-19 pandemic has negatively affected certain industries and startup ecosystems due to location constraints and access to funding and capital through VC’s may prove challenging. On a broader scale, the financial market will also take a while to recover and we are still not sure how long lockdown measures will be in place. But there are some positive signs in the vertical of health with innovations focusing on prevention, diagnostics and life adaptation services to combat Covid-19.

What is the impact of a recession on startups?

A recession is by definition a time when economic opportunities diminish, unemployment rises and private businesses may struggle to stay in business. At the same time, a recession does offer the opportunity for startups that are not tied to VC funds or have a novel idea, to thrive in this challenging environment.

How to develop a start-up to a scale-up?

Let’s assume that you already have a startup going and now you are looking to “scale up”. The first thing to keep in mind is that the foundations that determine whether a startup is even scalable, are set in the very beginning. The plan to scale-up should be in place from the start with the basics: launching an MVP (minimum viable product), market research, a solid team, and a product that fits the market. Scaling is more than just growing though, it is about adding value, products and services to make your customers’ life easier, without increasing costs. The right time to scale up and the way each startup will do it is unique and based on what you have built so far, cash flow, team dynamics and what your concrete goals are for the near future.

How to start a startup without investment?

Two questions are relevant here. Do you want to start your startup without investment due to the inability to find investors? Or are you opposed to the idea of investors altogether? If the former, then you will need to start slow with seed funding from friends and family until you have a product or service that investors are interested in. For the latter, focus on your X-factor and develop a product that is hard to ignore and a team that breathes and encapsulates the core message, brand and ethos of your brand. It will take hard work, patience and utilizing the power of social media and your marketing experts, but it is still doable.

What is a startup accelerator?

A startup accelerator is a mentorship program, for a fixed term, often 3 or 6 months, that provides budding entrepreneurs and startup developers with legal and financial advice, seed capital, networking opportunities, and office space in exchange for equity. Startups that are focused on fast and global scaling can benefit immensely from the mentoring and education provided by mentors and industry veterans. Y Combinator, Techstars and 500 Startups are some of the most well-known and coveted accelerator programs.

What is a startup incubator?

A startup incubator is another mentoring and support program offered to startups that can help you get started. While incubators and accelerators appear similar there are a few key differences. Incubators as the name suggests, operate as “nursery”, that provide seed capital and are often less selective in their application process and don’t have a set time frame. Accelerators, on the other hand, are about “accelerating” so they are focused on scaling as fast as possible.

Which countries have a start-up visa?

Start-up visas programmes are increasingly becoming very popular and more and more governments are realizing the importance of allowing entrepreneurs to establish and grow their businesses within their ecosystem. Some of the countries that are offering startup visas at the moment are Australia, Canada, Estonia, Japan, Lithuania, Singapore, South Korea and Taiwan.

What are some differences between the startup ecosystems of Europe and the USA?

The startup ecosystems of Europe and the USA are two of the strongest and most attractive entrepreneurial hubs in the world. Their differences are striking, however, in certain areas, especially access to late-stage funding which is severely lacking in most European startup ecosystems. Another key difference is risk tolerance and the growth mindset that the USA ecosystem developers display and promote. As a regionally disconnected ecosystem, Europe also offers a lot more variety. European startups know how to adapt and pivot to different market needs and dynamics as a result of the different cultures and languages that make up the European ecosystem.

About The Author

Rania Kalogirou is a staff writer at StartupBlink. A communications enthusiast she has an extensive background in journalism, digital media and linguistics. Currently on a journey to make positive changes in society and empower business growth. When not hitting keyboard keys, she is enjoying overpriced coffee and walking around the waterfront of her Greek hometown.

Suggested reading: How diversity & innovation shape the future of the German economy? 

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