Generally, when we think of startups we instantly remember fast growing companies like Uber, Stripe or Paytm or their smaller fast growing counterparts. Many people feel startups are only fast growing investor funded companies. While the most glamorous startups which are generally covered by the media do fall into this category but startups are of multiple varieties.
Startups can obviously be classified according to size but I feel that startups should be classified according to their goals for a better understanding of their differences. I will be introducing you to 4 types of startups :
- ‘Winner Takes All’ Startup
- Lifestyle Startup
- Social Startup
- Corporate Startup
‘Winner Takes All’ Startup
In certain markets, the economies of scale are so strong that the winner usually takes the lion’s share of the market. The market supports very few extremely large players. Thus startups in those markets want to grow as much as they can to become the number 1 player. For this goal, they want as many resources as they can get. Startups like Uber fall into this category. I call these ‘winner takes all’ startups.
I would also like to introduce you to a lifestyle business. Some traditional businesses are very profitable but they do not grow much. The founders are happy with these businesses and live a lavish lifestyle but they do not grow like startups. These are called lifestyle businesses in startup jargon. These are businesses that cannot get startup investors as their growth potential is limited.
A new kind of startup has emerged which tries to provide a lavish lifestyle to the founders and people working in that startup. These startups also want to be super profitable and grow big in revenues and profit while still providing founders and employees with time to live a relaxed and lavish lifestyle. Basecamp is a famous company that believes in this thought. I call these kinds of companies lifestyle startups.
There are startups who want to change the world but do not want to make a profit. I call them social startups. These startups are a hybrid between NGOs and startups. Khan Academy is a good example of such a startup.
Existing corporates sometimes create a new venture with explicit aim to grow like a startup in a new line of business. Reliance Jio in India is a very good example of such a startup. Reliance is one of the largest companies in India which has disrupted the telecom industry through its telecom venture called Reliance Jio. Many people do not think of such corporate ventures as startups because these ventures start with large budgets and big workforce. After reading the startup definition provided by Eric Ries (author of ‘The Lean Startup’) :
A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty
I feel that these ventures should also be called startups. These corporate ventures work under conditions of extreme uncertainty and aim to deliver a disruptive product or a service. Thus they should ideally be termed corporate startups.
Thus we see that startups can be in various forms. When you are starting a startup you should be clear about which type of startup you want to become. Your initial choice about the type of startup you want to build will determine your course of action over the years.
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