What is a start-up?

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Start-ups, fundamentally, are about creating technological innovation. PayPal co-founder Peter Thiel put it best in Zero to One: he defined start-ups as creators of vertical innovation and not horizontal innovation. Examples of once-start-ups include YouTube, Facebook, and Alibaba.

Vertical innovation refers to new technology that has not been created before. A start-up aims to create a monopoly in a niche market, and then expand to new markets. Meanwhile, horizontal innovation (also called globalisation) is about bringing existing technology to places that don’t have it.

Steve Blank, author of Four Steps to the Epiphany, put it another way: “A startup is a temporary organization used to search for a repeatable and scalable business model.” When a business model is repeatable, it means you can reapply the same practices repeatedly to create predictable results, be it revenue or user growth. Scalable businesses possess these traits:

  • Global ambition matched by internal processes that allow a business to grow quickly.
  • Raising of external capital from angel investors, venture capital funds, or private equity firms to fulfill demand and grow the business.
  • Invention of technology to help people do things in more effective and efficient ways than existing products.

Once a start-up finds a repeatable and scalable business model, it ceases to be a start-up.

Eric Ries, author of The Lean Startup, says that “a startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.” Start-ups make products that cater to a niche in ways that haven’t been done before. This makes start-ups unpredictable, because a new product may not resonate among its apparent users and may require constant adjustments before it gets there.

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