What is a startup? You might think of a trendy tech company with free beer on tap — but there’s more to it than unlimited vacation time and dogs in the office.
Simply put, a startup is a company in its early stages of operation. Startups are typically characterized by a small number of employees, limited operating history, and a focus on innovation and growth.
So if you’re considering launching a startup, you’ve come to the right place. Read on for a step-by-step guide on launching a startup, and some common startup struggles to be ready for.
What is a startup?
A startup is a new business formed to solve a problem for a target audience. These entrepreneurial ventures are designed to scale quickly. Startups often rely on a combination of personal savings, crowdfunding, angel investors, and venture capital to finance their growth. They are typically funded through bootstrapping, venture capital, or other means.
In general, startups are considered riskier than established businesses, but they also have the potential to grow quickly and generate significant returns for their founders and investors.
There are many stages of development that startups go through. However, the most common ventures people think of when they hear the phrase “startup business” are early-stage startups.
Let’s go over some examples of well-known startups. Keep in mind, many of these businesses began as startups, but after years of success can be considered full-fledged, large corporations. However, the startup mentality often remains part of the culture.
Successful Startup Examples
Slack is a messaging platform for teams that allows users to communicate and collaborate in real time. The company was founded in 2013 and quickly gained popularity among businesses for its user-friendly interface and ability to integrate with other tools.
Today, Slack is one of the most widely used communication platforms for teams and is considered a leading example of a successful startup.
One of the keys to Slack’s success was its heavy emphasis on customer feedback. Founder Stewart Butterfield recalls begging and cajoling friends at other businesses to try Slack and provide feedback.
Stripe is a payment processing platform that allows businesses to easily and securely accept payments online. The company was founded in 2010 and has since become one of the most popular payment processing platforms for online businesses, thanks to its developer-friendly APIs.
Stripe gained its seed funding from popular startup accelerator Y Combinator and additional venture funding from Sequoia Capital and Andreessen Horowitz.
Stripe is a classic example of how startups can gain traction early with money and guidance from VCs, angel investors, and startup accelerator programs.
Zoom is a video conferencing platform that allows users to meet and collaborate remotely. The company was founded in 2011 and has since grown to become one of the most popular and widely used video conferencing platforms, especially during the pandemic.
Zoom initially had trouble securing investors because many people thought the market was saturated. However, Zoom’s fast revenue growth, ease of use, and reliability resulted in a $1B valuation, making it a “Unicorn” startup and a top example of startup excellence.
Instacart is an online grocery delivery service that allows users to order groceries from their local stores and have them delivered to their homes. The company was founded in 2012 and has since grown to become one of the largest grocery delivery services in the U.S. and other countries.
Instacart also got its start at the famed Y Combinator accelerator. It proves to be a classic example of a startup that gained success by offering a modern, disruptive solution to an issue that customers didn’t even know they had.
What is an early-stage startup?
An early-stage startup is a business that is still involved in finalizing its product or service and gathering market data. The company may also be unable to pay its few employees because they’re still fundraising (which may include pulling from personal funds, personal and professional networks, or accelerators).
Not only are early startups awaiting funding, but they could also be working on research development, product business development, market research, and more. Due to being so early in the process and facing uncertainty, early-stage startups are the riskiest of them all.
When early-stage startups receive funding to help them develop their product in exchange for equity, it is referred to as pre-seed funding.
Here are some examples of early-stage startups.
Early-Stage Startup Examples
Baltimore-based Return offers B2B software to help companies maximize the impact of the content that they share. Return also claims to accelerate deal flow and increase sales.
Return is currently in the pre-seed funding stage, having received $1.2M to continue developing its product in exchange for equity. Currently, Return is considered an early-stage startup, as the company is still in the process of refining its product before entering the market at scale.
Impact Food is an early-stage, women-owned startup based in San Francisco that is dedicated to the creation of sustainable plant-based seafood alternatives. Impact food seeks to combat global warming and rampant overfishing with its innovative plant-based tuna.
Impact Food is an early-stage startup, as it has been around for less than a year and its team consists of only three people.
The three founders began working out of their home kitchens, bootstrapping and borrowing lab equipment from their school. They eventually closed a $500,000 round of seed funding from VC and angel investors.
San Francisco-based Parallel Health consists of a small team of just three founders. Using cutting-edge gene sequencing technology, they offer personalized skin care solutions based on your unique skin microbiome.
Parallel Health is an early-stage startup that is currently in the pre-seed stage of funding. This is the earliest funding stage. Investors provide capital to a company to begin developing their product in exchange for equity.
Perform is another three-person team, once again based in San Francisco. Perform offers an AI-powered personalized coaching and training program to help you meet your fitness goals.
Using AI, Perform can build you a training plan that adapts to your schedule and connect you with a running coach specialized for your specific goals.
Perform is an early-stage startup where the team consists of only the founders and they have so far received $1.2M in pre-seed funding to continue developing their technology.
Beginning a startup is not a linear path, but having a plan can clarify the chaos. Many entrepreneurs start their ventures with a startup roadmap, which outlines the goals and expectations for the business and where it’s going.
The planning process can start with a high-level overview to keep the big picture or end goal at the forefront of operations.
Since every business is different, no two roadmaps will look the same, but there are plenty of roadmap types to explore when devising your own.
Whether you are planning to launch an early-stage startup or develop a strategic plan for an existing one, you’ll need to first identify which of the six types of startups your business falls under.
You can then tailor your strategy accordingly and kickstart a successful launch (which we’ll cover in more detail shortly).
Types of Startups
- Small-to-mid-sized business startup
- Social startup
- Large business startup
- Scalable startup
- Acquirable/buyable startup
- Lifestyle startup
Let’s briefly review what makes each of these startup types unique.
- Small-to-mid-sized business startups. A startup that maintains revenue and assets, and has a workforce no greater than 2,000 employees.
- Social startups. A startup that develops, funds, and implements solutions for social, cultural, and environmental solutions.
- Large business startups. These companies are created to innovate and make substantial waves in their industry.
- Scalable startups. These businesses intend to scale immensely over time to turn into high-growth, profitable companies.
- Acquirable/buyable startups. These startups have little capital but rapid development and are created to be sold off to larger companies.
- Lifestyle startups. These startups are created to focus on the behaviors and activities (or the “lifestyle”) that the founders — and their target audience — are passionate about.
Keep in mind that a startup could fall within multiple categories rather than just one exclusively.
In addition to these types of startups, you’ve also probably heard the phrase lean startup.
The Lean Startup methodology refers to development and growth processes designed to minimize the need for funding as well as market risks. This process saves precious time and resources — two assets startups can’t afford to waste.
Regardless of the type of startup, more than 90% fail. Many of these failures are caused by issues involving cash flow and management troubles.
Instead of working through these issues the hard way, our Startup Growth Playbook (as well as the tips below) can help you avoid some of these problems before they happen.
Step-by-Step Startup Guide to Launch a Successful Business
Launching a startup isn’t a linear process. This section outlines the different spokes that make up the proverbial startup wheel.
1. Determine the type of startup you want.
The first step to launching a successful startup business requires creating a strong foundation. This is critical to your ability to grow and scale your business effectively. To do so, determine which of the six types of startups your business fits under.
To decide, ask yourself the following questions.
- Do you want to scale your business or maintain a small, local one?
- Do you want to go public with your business?
- Do you want to keep your business or eventually sell it off?
Once you narrow down your options, the rest of the process will become clearer because you will know the intentions of your business.
Pro tip: Think about the things you are passionate about and have experience with. If you are excited about an idea, it’ll be a lot easier to generate excitement from investors and potential customers.
2. Choose your strategy.
Consider the strategy and legal structure of your business. Naturally, these factors will differ according to the industry vertical you choose.
For example, if your company offers financial consulting, you’ll have to learn what software is best for managing client data. You may also need to consider a strategy for obtaining the appropriate investment advising licensing, creating an LLC, and if you need to form a team.
Once you have chosen these ideas for your startup, it’s time to validate the product or service you want to sell.
Pro tip: some types of businesses have more red tape and startup costs than others. If you are a first-time entrepreneur, starting a finance business, for example, requires insurance and licensing. This might be a headache if you are just getting your feet wet for the first time.
3. Conduct market research for your product or service.
You’ve got a business, but now you need an idea.
Let’s say you’ve got a great one: Subscription boxes for pets, toothpaste tablets, or maybe a co-working space for servicing your car.
Whatever your idea is, you’ve got one. You’ve named it and outlined how it solves a problem that customers face. And you’re excited about it.
But that doesn’t matter … not as much as how excited your customers are about it — ideally, keen enough to pay for it.
By talking to your potential customers and understanding their wants, needs, and expectations, you can avoid investing in products or services in which your customers aren’t interested.
The same goes for competitor research. With proper research, startups can avoid wasting resources by ensuring their idea and product will be well-received before they take the time and money to create it.
How can you do the same? By conducting market research.
Market research is a must when it comes to building a startup. This process can help you:
- Define and engage your target audience to learn more about how you can better solve their problems.
- Analyze your competition, and research their product or service, pricing structure, messaging, and unique selling proposition (USP) to understand better how you can set your business apart.
- Formulate your positioning statement for your product and your brand.
- Fuel your go-to-market strategy to outline how you’ll present your product or service to your intended market.
Pro tip: If you are just starting out, look no further than your friends, family, and coworkers. You’ll be surprised how much helpful feedback and perspective you can get from the people around you.
4. Obtain startup funding.
Now, let’s talk money. Did you know that most startups are funded by their founder(s) or their friends and family? That’s called bootstrapping — when the owner pays for their business expenses.
Bootstrapping is challenging work. (Remember when we said 90% of all startups fail?) Getting funded by outside investors doesn’t necessarily make it easier, either, considering that 75% of funded startups fail.
But that’s not to say you shouldn’t get funding. On the contrary, if done right, working with investors can give you more than money — it can also provide connections, advice, and mentorship.
There are a few ways to raise money for your startup — read through the following list to determine which might work for your business situation.
Incubators help startups accelerate their growth through support for management training, office space, capital, mentorship, and networking connections.
Incubators can be sponsored by various organizations: for-profit ventures, non-profit organizations, academic institutions, and even community and economic development organizations. Incubators can also be organized by industry, niche, or location — some may work specifically with fin-tech or agricultural startups, while others only accept startups in Kansas.
Only some startups are a good fit for an incubator. Fit depends on capital and physical needs, size, location, and how much equity you’re willing to give up. Regardless, for new startups, incubators are worth looking into.
(Learn about the differences between incubators and accelerators here.)
Venture Capital Funding
Venture capital (VC) is private equity (money) given to startups with high, long-term growth potential. This money is provided by venture capitalists who spearhead these specialized firms or funds.
VC is often a give-and-take scenario: Venture capitalists give money and take equity — thus gaining a seat at the table for company decisions. Some startups appreciate the extra voice; others don’t. Tools like capitalization tables (cap tables) can help you understand your equity and manage your ownership.
Also under the VC umbrella are angel investors, which are high-net-worth individuals who are also entrepreneurs. Angel investors often look to fund startups in the same industry as their own, and they sometimes “co-invest” with another angel investor or group of investors.
(Fun fact: HubSpot’s Dharmesh Shah is an angel investor in over 60 startups.)
Crowdfunding refers to raising money from your future customers and fans. It’s a great way to gain equity without giving away ownership, although crowdfunding doesn’t offer the same level of mentorship and education as incubators or venture capitalists.
Crowdfunding is also valuable for more than raising money. Crowdfunding increases your brand and product awareness, markets your brand to a new audience, and inherently validates your product or service ideas.
Get started on crowdfunding sites like Fundable, Crowdfunder, and WeFunder. If you’re crowdfunding for a product, check out Kickstarter and Indiegogo.
5. Grow your customer base.
Startups scale fast because they target the right customers and continually work to grow their customer base.
How do they do this? The answer is growth hacking, a fancy term for using creative, innovative, low-cost strategies to help achieve exponential user growth.
On the surface, growth hacking might seem overwhelming and intimidating. But if you’ve ever tested any aspect of your marketing strategy — an email subject line, web form format, or social media copy — you’ve dabbled in growth hacking without knowing.
Startups can also grow organically. This process refers to growth achieved by internal initiatives versus external funding. Some examples of organic growth include content marketing, social media marketing, search engine optimization (SEO), PR, paid advertising, and email marketing.
Pro tip: If growth hacking isn’t your thing, don’t be afraid to bring someone else onto the team to help out. If you are at an early stage, you can offer equity as an incentive for top talent.
Small Business Startup Guide
Now for the dreamers who want a small business or side hustle, the steps are still the same — except you won’t be thinking about scaling as far. Differences for small businesses may include:
- Growth intent. Small business startup owners won’t be looking to begin a business to rival large competitors or have many employees. The risks are much lower in maintaining a smaller scale and will not require as much fundraising effort.
- Business objective. Small businesses aren’t disrupting the markets. These instead serve a more local market for earning revenue to stay in business successfully.
- End Goals. The goal of this type of business is simple — to remain profitable. Large business startups will continue to innovate and compete to gain the largest market share.
How you start your business is up to you — but be careful because no matter the scale, there will be some challenges.
Common Startup Struggles
With such a high failure rate, it’s no surprise that startups are hard work. Thankfully, the impressive number of risk-takers and founders that have come before you have learned a thing or two about common startup struggles and how to overcome them.
While we’ve hardly captured them all, here are three major issues you’ll want to keep an eye on as you grow.
1. Product Management Struggles
When designing and selling a product, it’s good practice to listen to your customers and continue improving on the product. But, have you ever thought about when to stop? Unfortunately, not many founders do, which is how they experience feature creep.
Feature creep is the ongoing, excessive product expansion or the continual addition of new features. While improvement is a good thing, non-stop improvement can drain resources and eventually become unhealthy.
Think about it this way: If you had a goal to lose weight, you wouldn’t continually lose weight until you die, right? At some point on your weight loss journey, it’d become more about maintenance and balance than loss.
The same goes for your products. It’s great to have goals and to shoot for the perfect product, but at some point, you must stop and focus on maintaining a best-seller. Then, you can reroute your resources to a new goal or product.
2. Money Management Struggles
Ah, the silent startup killer: money management and cash flow.
Many startups fail because they either:
- Can’t bring in money.
- Spend their money on the wrong things.
- Manage their money all wrong.
- Or, all of the above.
While we can’t necessarily advise on how to fix all of these problems (as that will depend on your specific startup and expenses), we can equip you with a few helpful tools for managing your money better.
- Operating income formula calculates your startup’s profitability. Profitability is a significant indicator of success and potential future success.
- Burn rate shows you how fast you spend money before you reach profitability. A correctly calculated burn rate can be responsible for growth, planning, and future success.
- Debt-to-equity ratio shows how exactly your capital has been raised. This number tells lenders and investors how financially stable or risky your business might be.
- Working capital calculates how much money you have left to repay short-term debts. This indicates the current financial health of your business.
- Cash flow tells you how much money you have coming in and out of your business. It shows exactly where cash comes from and how you spend it.Use these tools and formulas to evaluate and improve your startup’s financial health.
3. Growth Management Struggles
If I asked you to, I bet you could list a whole host of startup founders who’ve been successful — Steve Jobs, Bill Gates, and Jeff Bezos, just to name a few.
In the startup world, it’s easy to compare. It’s also easy to change our decision-making and problem-solving processes when we hear what worked for others. But don’t just focus on startup success stories and forget about the failures. Failures can teach us valuable lessons too.
This is called survivorship bias, and many startups struggle with it. As you grow your startup, it’s essential to learn from failures as well as successes. As amazing as Jobs, Gates, and Bezos’ stories are, they represent a fraction of the business owners that have come before you.
Focus on what’s ahead of you, and do your best not to compare. If you have a pressing question, try to seek answers from successes and failures alike — there will be valuable lessons available from both.
Growth in the startup lane moves quickly, and managing it can be super tricky. Keep your business’s growth on track by balancing your influence and focusing on your business.
To learn more about startups and starting a business, check out some of the resources below.
- OnStartups by Dharmesh Shah of HubSpot. This blog discusses many common startup topics and features guest posts by other startup experts.
- A Smart Bear by Jason Cohen, the creator of WP Engine. Cohen writes about startups, sales, bootstrapping, fundraising, technology, and entrepreneurship.
- Venture Hacks by the creators of AngelList, a site for finding job and investment opportunities for startups. This blog features a mix of how-to content, opinion articles, and guest posts from fellow investors and startup founders.
- Startup Nation. This blog focuses on the many facets of starting and growing a business yourself. If you are working on a startup, this could be a great resource.
- The Lean Startup by Eric Ries. This book covers the entire Lean Startup methodology and how to apply it to your business.
- Rework by Jason Fried and David Heinemeier Hansson. The co-founders of Basecamp talk about “a better, faster, easier way to succeed in business.”
- Do More Faster by Brad Feld. Feld aggregates practical advice from founders and investors about startups, growth, and raising money.
- Startup Owner’s Manual by Steve Blank. This book provides a step-by-step guide to starting a profitable, scalable business.
- Startup Weekend — a 54-hour startup event put on by Google for Startups and TechStars. Multiple locations around the world.
- SXSW — a week-long event in Austin, TX, that celebrates entrepreneurship, tech, music, and film. 2023’s event is March 10-19th.
- TechCrunch Disrupt — one of the oldest startup events in the world, held in San Francisco and Berlin.
Over to You
So, what does startup mean to you? After this guide, you should have a good idea of how you want your startup to look. Your startup should be poised for great success as long as you have a validated idea, a plan for funding, and a rapid growth mindset.
Editor’s note: This post was originally published in January 2019 and has been updated for comprehensiveness.
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