Startups vs. Companies

You are reading the Startup Lore - Deyan's guide to creating successful startups.

Table of Contents:
  1. Introduction to the Startup Lore
  2. Understanding Startups
  3. Building the Startup Organization
  4. Achieving Product/Market Fit
  5. Conclusion

Version 0.3 (alpha, i.e. still needs lots of work). Last update on 7/13/2014.

Summary: Startups are fundamentally different from companies rather than just small or young versions of them.

A useful way to compare startups and companies is by using the notion of exploration versus exploitation.

Companies are defined by having an established business model, which they are exploiting to become as efficient and dominant in their space as possible. The organization has a clear understanding of what it is selling and to whom. [1] Typically, a company is steadily improving its offering in order to stay competitive and is (hopefully) linearly growing revenues, which I have illustrated in the picture below.

startup vs company

New ventures are in a fundamentally different world because they don't know what their product is or who their customer is. Entrepreneurs certainly have a first guess, but that is little more than a hypothesis, which may or may not be correct. That is why, startups are in exploration mode, trying to uncover the right customer/product mix that will hopefully turn into a repeatable and scalable business model, enabling the fledging venture to become a stable company. The startup line in the picture above resembles a rollercoaster, because there are many ups and downs as the entrepreneurial team is trying different customer/product combinations. If the venture is successful, then there is an eventual uptake, with its growth curve depending on the success of the business (e.g. high-growth tech companies can become multi-billion dollar ventures). Of course, the startup might fail if the entrepreneurs are unable to find a business model with the resources they can gather - which is reflected in the dashed, downward sloping line above.

This contrast between startups and companies is due to the inherent characteristics of new ventures.

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Notes

[1] Obviously, the cyclical nature of business necessitates that established companies develop some way to reinvent themselves through exploration and innovation or face eventual death. This issue falls beyond the scope of this guide, which is focused on startups. If you are interested in learning more on the topic, I recommend reading The Innovator's Dilemma and The Innovator's Solution by Clayton Christensen.

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