I’ve noticed many 30-second elevator pitches indicate a company’s size and scope, such as “Expeditors International is a Fortune 500 global logistics provider” or “Pelago is an early stage company building Whrrl”.
When does a company go from being a startup to being “early stage”, or a “small business”? Milestones for making the jump could be:
- X number of employees (30? 50?) and/or someone dedicated to HR full time
- Heavy funding, or no expectation of taking additional funding
- Existed longer than X period of time (4 years? 7 years?)
- Enough revenue to keep your business alive, or profitable (now or in the past)
- Publicly traded, or are part of a merger or acquisition
Keeping the “Feel” of a Startup
I can understand the desire to identify your business as a startup, even when you’re technically not one anymore. Maybe some companies call themselves startups for longer than they should because they want to project a particular company culture:
- Fast moving (running 100mph every day), with a sense of racing the clock
- Scrappy and frugal when it comes to spending money
- Open to new ideas, new directions, and able to seize opportunity quickly
- Innovative and inventive, nothing is set in stone yet, no bureaucracy
You Can’t Deny Reality
So why does this matter? It matters because saying, “It’s okay, we’re a startup” becomes a cop-out eventually. Saying this to potential employees, investors, or customers when it isn’t true comes off as disingenuous and smacks of enormous denial of reality. Denial of reality (think ostrich with its head in the sand) is my number one red flag when dealing with other people. I find the inability to see the world as it truly is, is rarely a one-time error. Usually, it can be found to be a systemic flaw in thinking that rarely results in success.
Some companies cling to the title of startup even when they are heavily funded businesses, hiding behind the label as an excuse for not having reached profitability. Being a startup is like being an entrepreneur, it’s a temporary state. You can be entrepreneurial but not an entrepreneur just as you can be scrappy and innovative without being a startup. In the best case scenario the entrepreneur becomes a successful businessman and the startup becomes a successful business.
Breakdown of Business Types
Startup:Â a new company, working on building proof of concept
Early Stage:Â has achieved proof of concept, working on building revenues
Business:Â a company with revenues, working on achieving profitability
Successful Business: a profitable company
Interesting. I’m inclined put “early stage” before “startup” in the lifecycle — I would consider a company that’s defining itself for the first time to be an early stage startup (eg. a company that’s in stealth mode), one that’s still trying to prove itself and its product to (still) be a startup, and one that’s applying a specific business model (whether profitable or not) to be an established business.
Hey Sunil!
What you say is very interesting.  I’ve heard “early stage company” used to refer to companies that have been startups for awhile and are transitioning to full fledges businesses (revenue), but maybe I’ve been misunderstanding the context. From what I can tell, there isn’t a good definitive blog post or definition online – but digging around a bit more it looks like VCs blogs refer to early-stage startups as being pre-funding. Do you have any sources you find particularly helpful?
I’d consider “stealth”, “seed”, “angel-backed”, and “VC-backed” to all be flavors of startups.
I’ll have to do some more research.
The term might be used in reference to the early stage of a startup in addition to the early stage of an established business, but I typically see it used in the first context.
Union Square Ventures says “Early stage investing encompasses seed, startup, angel, and first round investing.” which is more specific than my original description, but along the same lines.
Apart from revenue, profitability, or exit strategy (eg. acquisition), I’m not sure what other lines one could draw to objectively make the decision that a company is no longer a startup.
There are numerous companies that have been around for years and have gone through multiple rounds of funding (Pelago and Twitter come to mind) which I would still consider to be startups, even though neither is “early stage”. Conversely, companies like Delicious and Facebook don’t fit the stereotype, because the first was acquired, and despite its lack of profitability, the second is simply too large.
@Sunil – Yep, you’re right I think I was confused about what “early stage” was referring to. Strikethrough edit to come.
Also, thanks for the Union Square Ventures blog link, I’m not currently following them and I should definitely read it on a more regular basis. Are there any other VC blogs you would suggest?