The classification of startups depends on their growth prospects, investment needs, and the lifestyle implications. It is essential for an entrepreneur to do study on different types of startups before making his/her footprint on the startup journey. Not only a venture funded technology company which has high risk, and a high growth is a startup company, but also a small business or a lifestyle business can be a good example of a startup business. Because most of the startups do not start their journey from Silicon Valley and end-up with a billion dollar, IPO.
Doing some deep research, I found there are different types of startups as per risk measurements, growth perspectives, capital requirements and lifestyle demands. This article will help you to understand a clear image of startup classifications.
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| Types of Startup |
Types of startups basis on business purposes
Startups are classified into 6 different types. Famous author on startups and Silicon Valley Entrepreneur, Steve Blank, explains the entrepreneurial process with these six types of startups.
1. Small Business Startups
2. Large Company Startups
3. Scalable Startups
4. Buyable Startups
5. Lifestyle Startups
6. Social Startups
This list is not comprehensive, but it delivers an analytical framework by which you can evaluate and make decisions to launch and grow your startup business. Explanation is given below:
- Small Business Startups
- Large Company Startups
- Scalable Startups
- Buyable Startups
- Lifestyle Startups
- Social Startups
Small Business Startups: For supporting the family
Today a huge number of entrepreneurs are involved in the small business sector. Usually, it can be described as traditional business. Small business startups are businesses which are generally owned and controlled by the owner to create a comfortable living for their family and friends.
Examples: Personal trainers, grocery stores, travel agents, consultants, carpenters, electricians, hairdressers, bakers, etc.
Key points:
➤ This kind of business is not designed to scale.
➤ The Owner runs his/her own business.
➤ They work as hard as any large company entrepreneur.
➤ Investment and profit margin is lower than any other large company.
➤ To run their business they hire family members, close friends and local employees.
➤ Their capital resources are their savings, and what they can borrow from relatives and banks.
Small-business entrepreneurs don’t become billionaires but all together they play a vital role in a country's economy by creating a huge number of local jobs.
Large Company Startups: Focus on innovation
Which company starts small with a revolutionary product but very fast acquires the global acceptance is considered as a large company startup. Large companies have a limited life duration.
Examples: Google and Android
Key points:
➤ To keep growing they need to innovate their core product or innovate a fully new product for a new market.
➤ Large companies always give priority to the customer tastes.
➤ Following the new technologies, new competitors and customer tastes they continuously update their products.
➤ For a new market they create entirely new products, and sell them to new customers.
➤ Large companies reach the end of their life cycle very quickly.
Scalable Startups: Designed to be expanded
A technology-based startup that is started with the clear goal to grow into a large organization that is called a scalable startup. A novel idea, and its perfect execution can make a successful scalable tech startup. Scalable startups can be divided into two parts:
1. Self-funded scalable business
2. Externally funded scalable startup
Examples: Uber, AirBnB, Facebook etc.
Key points:
➤ Need a technology based novel idea or business model.
➤ Very easy and vast access to the global market.
➤ Extremely scalable business planning.
➤ To beat the competitors needs a talented group of employees.
➤ A huge amount of external funding from venture capitalists and other investors.
➤ Need a huge press coverage and immense PR operation.
➤ Supreme success or disaster failure is achieved in this startup.
Buyable Startups: Designed to be sold or flipped
The startups which are designed to be sold or acquired in future by other larger companies are called buyable startups. In recent years, some popular web and mobile app startups were sold to larger companies. In this case the founder starts the business with little capital and develops it. When the idea or startup becomes popular to the people of the particular market then the founder sells it to a big size company.
Examples: Instagram is acquired by Facebook and the web-based startup Divshot is acquired by Google.
Key points:
➤ The goal of these kinds of startups is to generate hundreds of million revenue.
➤ They work basically on small niches but in well-defined markets.
➤ To acquire a popular small startup is like a complementary for the large companies.
➤ Sometimes buyable startups work as R&D for the larger acquirer as they know the business model very well.
➤ Basically, the web and mobile app related software companies are entering in this category of startups.
➤ Day by day this type of startup is becoming popular.
Lifestyle Startups: Hobby or passion to business
If someone generates profit for living by using his/her passion then it will be a lifestyle startup. The owner loves to do this kind of business.
Examples: Who loves drawing can build an animation firm. A high-profile job or business professionalism can start a business consulting firm. A passionate surfer can be a surfing coach. Music lovers can open a music school.
Key points:
➤ Hobby, talent and passion these words are very much involved in lifestyle startups.
➤ Lifestyle entrepreneurs work for their mental satisfaction, and they enjoy their jobs because of their passion.
➤ A lifestyle business allows you to work on your own terms, and conditions.
➤ It's not a fast-growing company with many employees but it provides a satisfactory life to the entrepreneur.
Social Startups: To make the world a better place
Socially ambitious startups whose main goal is to make a difference in the world giving a quality value to society by solving social issues are considered as social startups.
These startups only work for the well-being of the world.
These companies can be a profitable company or a non-profit company or a hybrid
company.
Examples: The initiative of Scott Harrison, ‘charity: water’ provides safe and potable drinking water in 28 countries around the world. ‘charity: water’ raised $69.3 million in 2018. The microfinance and microcredit social welfare bank Grameen Bank is one of the great examples of social startups. Reducing poverty by giving microloan to the villagers is a great initiative by Muhammad Yunus for which he was awarded Nobel Prize in 2006.
Key points:
➤ Principal goal is to make a better world for the people.
➤ Like scalable startups they do not work for building wealth.
➤ They make a good impact on society.
➤ They work on novel ideas which actually help people to find the solution.
➤ To be succeeded in this startup is very difficult because countless problems will be raised on this crazy journey.
➤ People appreciate social startups a lot.
Surely, there may be more types of startups in entrepreneurship, but every startup stands on a wonderful problem-solving idea which gives a great value to the development of a country. And every entrepreneur should have a crystal-clear understanding on different kinds of startups. This perception will help him/her to start the startup and make a better decision in the process of startup journey.