All startups can be classified into five categories. Read this article to get to know the names of these categories and their characteristics.
Startups can be classified into five categories according to their goals, methods of attracting funds, the way they are established, and their approaches to scaling. But, of course, this classification doesn’t consider the industry that a company belongs to. From this article, you’ll get to know the names and primary characteristics of all five categories.
The Definition of a Startup
In this article, we’ll be talking about businesses that meet the following criteria:
- Have a maximum of 30 employees
- Are financed via bootstrapping, outside investors or loans
- Are not mature yet — this means they’re not ready to be bought out and are experiencing growth
Below, we’ll describe the five most popular startup categories.
Some people use the terms “startup” and “small business” interchangeably. Yet, not all startups remain small. Instead, they might start as indie companies with ten or fewer professional teams. Then, they attract significant investments, or bigger organizations buy them.
A startup that doesn’t follow this path can be characterized as a small or family business. It doesn’t scale dramatically. Instead, it keeps growing gradually, generating profit — but its owners don’t strive to make it a global affair. Many startups of this type are either bootstrapped or self-funded. This gives their managers greater freedom. When choosing ways for development, they don’t need to please their shareholders and focus on other values instead. These values might include longevity and add to the community.
We already mentioned them in the previous passage. The team behind the startup aims to sell their business to a bigger player in their industry. Most startups of this type belong to the tech and software industry, where mergers and acquisitions occur every day.
Not every business that was conceived as buyable manages to take off. The competition in nearly any sphere is fierce. Such startups are typically sold before they start generating profit, so investors carefully weigh all potential risks before the purchase.
Buyable startups are typically created by serial entrepreneurs who are not afraid of failures. Therefore, businesses based on ideas with tremendous growth potential have the highest odds of being bought.
Startups that belong to this type are supposed to scale without changing their owners. You release a product, and you strive to expand its customer base. You conduct research, conduct marketing campaigns, gather consumer feedback, and improve your product.
Scalable startups can raise capital from various outside investors:
- Angel investors
- Venture capitalists
- Business partners
- Friends and family members of their owners
One day you might decide to sell your startup. But before you do so, you should grow your business and make sure it begins to generate revenue.
Startups that belong to this category branch off from larger parent companies. Corporations might establish them to enter new markets, diversify product offerings, or disrupt smaller competitors. Compared to their parent organizations, offshoot startups enjoy greater freedom, are less subject to scrutiny and can develop more flexibly. Startups of this type easily embrace new technologies, adapt to market changes and fluctuations of consumer demand. In addition, their managers can afford to experiment with business models because they know that parent companies will support them with money and expertise.
Not all startup founders consider profit as their top priority. Some would prefer to make an impact on the surrounding world instead. Entrepreneurs who have ideas that can solve widespread problems, specifically for disadvantaged communities, launch nonprofits and charitable companies. They receive grants and donations from businesses and individuals who support philanthropic initiatives. Some social startups exist only thanks to donations, and others manage to generate revenue.
Which Industries Do Most Startups Come from?
Most successful startups today are related to IT and technologies. However, you can also find many promising projects in the following spheres:
- Blockchain and cryptocurrencies
- Environmental and energy
- Marketing and advertising
- Real estate
- Retail and ecommerce
Some people might decide to turn their hobbies into businesses. Such startups are known as lifestyle ones. You don’t need to be an experienced entrepreneur to try your hand at this sphere of activity. You need to nurture your idea and discuss it with a startup development company. Skilled professionals will explain how to make the most of your business concept.
Hopefully, you found this article informative, and now you better understand the differences between the five types of startups. You might want to launch a social, offshoot, scalable or buyable startup as well as a small business. If you’re going to start making money on your hobby, that would be a lifestyle startup, and it can belong to any of these five categories. The type that your startup belongs to will impact your business model, ways of attracting funds, and approach to scaling.