“Startup” is often treated as a catch-all buzzword among businesses. However, contrary to common assumptions, the word isn’t exclusive to Silicon Valley’s scrappy tech firms.
So, what exactly qualifies as a startup? In a nutshell, they’re businesses that check the following boxes:
Comprised of < 30 employees
Financed via bootstrapping, outside investors, or loans
They aren’t yet companies or “mature”; they aren’t usually ready to be bought out and are either anticipating or experiencing hockey-stick development.
There are five fundamental sorts of startups found in various sectors, each with its growth strategy. You’ll learn about each one in this guide:
- Small business startups
- Buyable startups
- Scalable startups
- Offshoot startups
- Social startups
What are the five types of startups? What distinguishes them?
We’ve broken down real-world examples of various startup kinds and how they scale in the sections below.
1. Small business startups: Self-starter, indie companies with small teams
Based on the criteria above, the average startup has more in common with the average mom-and-pop store than it does with Google or Apple.
Yes, the line between a startup and a small business is a little blurry. Perhaps this is why so many people confuse the two names.
Most startups have a “larger” endpoint in mind, such as getting acquired or receiving funding.
The beginnings of a small business are unique. These firms, which range from single enterprises to partnerships to small teams, stay small while selling their goods and services.
And, while they want to grow, they do so at their rate. Because these firms are typically bootstrapped or self-funded, there is less need to expand quickly or cater to investors’ immediate demands.
One of these startups, 24 Hour Tees, is an excellent example. They treat their work as a family while simultaneously running a profitable, scalable company. They’re also proof that you don’t have to be a tech company to reap the benefits of technology.
Even if you’re a T-shirt design company, having an interest in and understanding technology may save you a lot of time and money. Unlike old-school small enterprises that stay trapped in their ways, companies like 24 Hour Tees engage in technologies and automation to level up their operation.
RingCentral is a piece of the puzzle, giving the better customer and internal communication technologies. In a nutshell, our solution enables 24 Hour Tees to deliver excellent customer service while meeting the high demand.
2. Buyable startups: Businesses built to be bought out
The idea is that small groups create a firm from the ground up and then sell it to a more significant player in their field.
These kinds of businesses are frequently related to software and technology. You’ve probably seen the news about tech behemoths like Amazon or Uber acquiring smaller companies. These kinds of mergers and acquisitions happen all the time.
Getting bought out seems like a pretty good bargain.
However, building something worth millions (or billions) of dollars is easier said than done.
Consider the fact that in any particular software business, competition is intense. There are hundreds of companies in B2B SaaS alone to fight with.
It’s important to remember that companies don’t have to be successful to be bought out (and many aren’t). This is a significant risk for investors, but it’s much more so for business owners seeking to sell a firm that is losing money. Look no farther than WeWork’s untimely demise to see how ugly this process can be.
However, many independent app developers and small teams work on a business (or even a side hustle) for a few years before selling it to a giant corporation. What’s the takeaway? It’s not always necessary to “go big or go home” when building a buyable firm.
3. Scalable startups: Companies that seek capital (or scale themselves)
The urge to scale is a common thread throughout all sorts of companies.
This is true whether you’re a multi-billion-dollar corporation or a two-person operation operating out of your parents’ garage (hint: RingCentral’s office suite is open to all startups, no matter how big or small).
However, some startups are more easily scaled than others. Most consumer and commercial applications are scalable startups: after establishing a following and a user base, it’s simpler to attract new consumers. It’s a snowball effect if you will.
This is accomplished by scalable businesses raising funding from outside investors (think: angel investors, venture capitalists, business partners, friends, family). They can promote expansion activities to get more consumers and eventually attract people eager to buy them out with their newfound income.
However, some firms can expand indefinitely without resorting to a typical exit plan. ConvertKit is an excellent example. The firm has previously received finance, but it recently exceeded the $15 million ARR mark and hoped to keep its “startup” status:
Also, firms that want to expand and raise money don’t have to rely on millionaires or billionaires to do so. In reality, several firms, such as Oculus, have developed through crowdfunding from enthusiastic, potential clients.
4. Offshoot startups: Companies that branch off from more giant corporations
Startups aren’t all created from the ground up.
A subsidiary company is self-explanatory. Simply, they’re startups that split off from their larger parent company to become their businesses.
An offshoot firm, for example, might be created for a giant corporation to enter a new market or to undermine a smaller competitor. Because these startups are apart from their parent corporations, they have more leeway to do business and experiment without attracting as much attention.
According to Investopedia, a firm like Sidewalk Labs (a subsidiary of Google’s parent company Alphabet) is an excellent example of such a subsidiary.
5. Social startups: Nonprofits and charitable companies
Startups are often portrayed as greedy for money and preoccupied with expansion.
However, some businesses are created to do good. Charities and nonprofits are examples of social startups that scale for generosity. They function in the same way as any other startup but with funding and benefactors.
Code.org is a shining example of a social company, having raised approximately $60 million from the likes of Google and Facebook to assist provide students with possibilities in computer science.
What are the most common types of startups industry-wise?
Finally, here’s a short rundown of the most prevalent sorts of startups, broken down by industry. Even though most of them are tech-related, there are startup chances in “nontraditional” drives.
- Software (SaaS) and technology
- Marketing and advertising
- Real estate
- Environmental and energy
- Retail and eCommerce
- Cryptocurrencies and blockchain
Which type of startup are you capable of the building?
Many individuals believe that startups are one-size-fits-all.