Starting a business doesn’t necessarily mean starting a startup. If the term has fallen into the common language and is often used to designate a young company, the startup differs from the classic company by a number of elements.
In this course, you will discover what a startup is and what the characteristics of this type of company are. We will focus in particular on the temporary nature of the development phase of a startup.
I. Definition of a startup
The term startup appeared in the 1920s on Wall Street during Radiomania, a key period in American stock market history characterized by a massive investment in companies specializing in wireless transmission.
But it was not until the 1990s that the term was popularized by the proliferation of dot com companies (internet companies) and venture capital companies in the United States.
Literally, “startup” means “entreprise qui lance” or “jeune pousse” in French. The notion of startup is therefore linked to the notion of experimentation on a new activity, on a new market, with a risk that is difficult to assess.
The most common definition is that of Steve Blank, a famous Silicon Valley entrepreneur known for developing the Lean Startup method:
This definition makes it possible to pinpoint the most fundamental point of differentiation between a startup and a company.
- A company is organized to execute and optimize an already established business model, marketing a product or service in a perfectly identified market.
- A startup experiments with a business model and tests an uncertain market. This does not allow it to clearly define all its components and, consequently, ensure immediate profitability.
Dave McClure, founder of 500 Startups, offers a slightly different definition, emphasizing the experimental nature of any startup:
« Une startup est une entreprise qui ne sait pas (1) ce qu’est son produit, (2) qui sont ses clients et (3) comment gagner de l’argent »
For him, a startup is a company that does not know exactly:
- what its product is
- who are its customers
- how to make money
The startup is therefore also distinguished by the risk associated with experimentation: the first years of a startup’s life are made of numerous iterations and tests, and it is not uncommon for many projects to fail.
As you can see, there are several theoretical definitions of the startup, depending on which element you want to focus on. In practice, however, there are characteristics common to all startups.
II. The characteristics of a startup
Whatever its sector of activity, its number of years of activity and its size, a startup always meets the following three characteristics.
The transitional/temporary aspect: a startup is not intended to last indefinitely. Rather, it is a particular phase of development, the main objective of which is to come out of it.
- By definition, the startup lasts the time of the phase of exploration and experimentation. It therefore covers the period during which we look for the business model and refine the various parameters.
- The prospect of strong and rapid growth, even exponential. This is the main feature highlighted by Paul Graham, co-founder of the famous YCombinator incubator
« A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth. »
What could be translated as: “A startup is a company designed to grow quickly. Being newly created does not make a company a startup. Nor is it necessary for a startup to be in the field of technology, or to be funded by VC funds, or to have some sort of “exit”. The only thing that matters is growth. Everything else we associate with startups comes from growth. “
Scalability, that is, its ability to maintain high profitability despite exponential growth. A scalable business is a structure in which the revenues generated are not directly related to the increase in costs. The scalability of a startup depends on its ability to attract many users and make people talk about it. It is therefore essential to target a global market from the beginning and to set up a structure that can grow exponentially.
III. The life cycle of a startup
The lifetime of a startup is by definition limited. As Peter Thiel, famous Silicon Valley entrepreneur, says in his best-seller: the goal of a startup is to go from 0 to 1, to transform an idea into a sustainable business with a profitable business model, finding a new way to serve and create value.
We can schematically identify four phases in the life of a startup:
- the ideation phase, which consists of identifying an idea testing it with potential users, and then formulating the foundations of a model that works.
- the early stage phase, in which the startup accelerates its commercial and technological development and begins to generate revenue, to find its business model.
- the growth phase, reached when the business model seems to have been found. The startup then faces the challenge of scalability. During this phase, it wonders about the relevance and the solidity of its model if it multiplies its customers and its revenues (by 100, by 1000…).
- the maturity phase, which marks the transformation of the startup into a traditional company with an established economic model that is viable over the long term. It can then go public (the famous IPO) or be bought by another company or an investment fund.
For example, Google and Facebook are no longer considered startups because they are companies that have managed to define and stabilize their business model. On the other hand, companies like Uber or Twitter – whose business model is still evolving – remain startups, especially because they need external funding to survive.
Validate and improve the initial idea
Before discussing very concrete topics such as marketing, team or financing, the priority to carry out your project is to identify very clearly the problem you want to solve and the solution you intend to bring to it.
The next chapter of this course will be devoted to the validation of your initial idea, through different phases. With the different lessons you will receive, you will be able to challenge, test, and improve your idea until it becomes concrete. This will take the form of an iterative process in which you will explore your market, test solutions and interact with your potential customers to define a coherent and relevant value proposition.
To start on a good foundation, here are some explanations on the importance of the validation phase of your startup idea and on the definition of what is a «good idea». We will finish this introduction by presenting the method you will apply to your project in the coming weeks.
I. Why take the time to validate your startup idea?
The process of «validating your idea» may seem superfluous at first glance, especially if you already have the conviction that your concept is promising.
If this is the case, remember that 90% of startups do not exceed the stage of the early stage (corresponding to the first two years of existence) and that, according to an American study, 42% of these failures are attributable to the lack of market, that is, the absence of a proven need for a new product or service.
At the start, it is important not to make the mistake made by many startup creators: fascinated by the technological aspect, they are blinded by innovation and forget to verify that their solution meets a need. In such a situation, the risk is great to spend months or years of development on a product, to finally realize at the time of launch that no one wants it!
Your success as an entrepreneur therefore depends on your ability to validate, test and evolve your idea very quickly so that it is as relevant as possible.
This justifies that you spend the time it takes to check the existence of the problem you want to address first, then the correctness of the solution you plan to bring in a second time.
II. What is a good startup idea?
It is not enough to believe in your idea for it to actually be a «good startup idea». In reality, three fundamental criteria are used to define whether an idea is good or a solution is relevant.
- Desirability: do users/consumers really want to buy your product/solution? Does your solution meet a real market need?
- Feasibility: is it technically possible to realize your product or solution? Do you have the capacity to implement your idea?
- Sustainability: Will your idea or solution generate income? In other words, is there a business model behind your idea?
When a project does not meet these three criteria, it is very likely that it is risky or expensive and that success is not in sight.
It is very possible at this point that you do not know if your idea meets these three criteria or not. In this case, rest assured! Validating a startup idea takes time. This is a normal, fundamental step, and the next courses have been precisely designed to accompany you in this process.
It’s not easy to come up with ideas from a blank page. To get started, look around for problems. This is a good method as, again, your project must start from a problem to be solved. It is also the simplest because our brain is trained to find solutions to a clearly identified problem.
III. The method to validate your startup idea
3. Validate needs with field users
To validate a startup idea, you must first explore the need you want to meet. This exploration phase, the first step in the iterative process, consists in verifying that the need exists on the users’ side. This is a mandatory prerequisite: if there is no problem, there is no need to seek a solution. This would be as useless as wanting to use a hammer at all costs in the absence of a nail to hit!
If the parallel highlights the fundamental character of the exploration of the need, the fact remains that this stage is too often neglected in fact. It is estimated that 80% of startup failures are due to poor market exploration.
To avoid this pitfall, it is essential to gather as much information as possible, bearing in mind the keyword «terrain». Indeed, do not develop your solution in your corner. On the contrary, it is essential to confront it with reality because it is your users who, by their feedback, will help you adjust and make the best decisions.
In this course, we will discuss in detail why needs analysis is so important. We will then get to the heart of the matter by examining who to contact for field feedback and how to conduct your discovery conversations.