A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model.[1][2] While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend to become registered, startups refer to new businesses that intend to grow large beyond the solo founder.[3] At the beginning, startups face high uncertainty[4] and have high rates of failure, but a minority of them do go on to be successful and influential.[5]
Startups typically begin by a founder (solo-founder) or co-founders who have a way to solve a problem. The founder of a startup will begin market validation by problem interview, solution interview, and building a minimum viable product (MVP), i.e. a prototype, to develop and validate their business models. The startup process can take a long period of time (by some estimates, three years or longer), and hence sustaining effort is required. Over the long term, sustaining effort is especially challenging because of the high failure rates and uncertain outcomes.[6] Having a business plan in place outlines what to do and how to plan and achieve an idea in the future. Typically, these plans outline the first 3 to 5 years of your business strategy. [7]
Startup Company
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Models behind startups presenting as ventures are usually associated with design science. Design science uses design principles considered to be a coherent set of normative ideas and propositions to design and construct the company's backbone.[8] For example, one of the initial design principles is "affordable loss".[9]
Because of the lack of information, high uncertainty, the need to make decisions quickly, founders of startups use many heuristics and exhibit biases in their startup actions. Biases and heuristics are parts of our cognitive toolboxes in the decision-making process. They help us decide quickly as possible under uncertainty but sometimes become erroneous and fallacious.[10]
Entrepreneurs often become overconfident about their startups and their influence on an outcome (case of the illusion of control). Entrepreneurs tend to believe they have more degree of control over events, discounting the role of luck. Below are some of the most critical decision biases of entrepreneurs to start up a new business.[10]
Many entrepreneurs seek feedback from mentors in creating their startups. Mentors guide founders and impart entrepreneurial skills and may increase the self-efficacy of nascent entrepreneurs.[11] Mentoring offers direction for entrepreneurs to enhance their knowledge of how to sustain their assets relating to their status and identity and strengthen their real-time skills.[12]
A key principle of startup is to validate the market need before providing a customer-centric product or service to avoid business ideas with weak demand.[14] Market validation can be done in a number of ways, including surveys, cold calling, email responses, word of mouth or through sample research.[15]
In startups, many decisions are made under uncertainty,[4] and hence a key principle for startups is to be agile and flexible. Founders can embed options to design startups in flexible manners, so that the startups can change easily in future.
Startups may form partnerships with other firms to enable their business model to operate.[17] To become attractive to other businesses, startups need to align their internal features, such as management style and products with the market situation. In their 2013 study, Kask and Linton develop two ideal profiles, or also known as configurations or archetypes, for startups that are commercializing inventions. The inheritor profile calls for a management style that is not too entrepreneurial (more conservative) and the startup should have an incremental invention (building on a previous standard). This profile is set out to be more successful (in finding a business partner) in a market that has a dominant design (a clear standard is applied in this market). In contrast to this profile is the originator which has a management style that is highly entrepreneurial and in which a radical invention or a disruptive innovation (totally new standard) is being developed. This profile is set out to be more successful (in finding a business partner) in a market that does not have a dominant design (established standard). New startups should align themselves to one of the profiles when commercializing an invention to be able to find and be attractive to a business partner. By finding a business partner, a startup has greater chances of becoming successful.[18]
Startups usually need many different partners to realize their business idea. The commercialization process is often a bumpy road with iterations and new insights during the process. Hasche and Linton (2018)[19] argue that startups can learn from their relationships with other firms, and even if the relationship ends, the startup will have gained valuable knowledge about how it should move on going forward. When a relationship is failing for a startup it needs to make changes. Three types of changes can be identified according to Hasche and Linton (2018):[19]
Startups need to learn at a huge speed before running out of resources. Proactive actions (experimentation, searching, etc.) enhance a founder's learning to start a company.[20] To learn effectively, founders often formulate falsifiable hypotheses, build a minimum viable product (MVP), and conduct A/B testing.
Founders or co-founders are people involved in the initial launch of startup companies. Anyone can be a co-founder, and an existing company can also be a co-founder, but the most common co-founders are founder-CEOs, engineers, hackers, web developers, web designers and others involved in the ground level of a new, often venture. The founder that is responsible for the overall strategy of the startup plays the role of founder-CEOs, much like CEOs in established firms. Startup studios provide an opportunity for founders and team members to grow along with the business they help to build. In order to create forward momentum, founders must ensure that they provide opportunities for their team members to grow and evolve within the company.[22]
The language of securities regulation in the United States considers co-founders to be "promoters" under Regulation D. The U.S. Securities and Exchange Commission definition of "Promoter" includes: (i) Any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer;[23] However, not every promoter is a co-founder. In fact, there is no formal, legal definition of what makes somebody a co-founder.[24][25] The right to call oneself a co-founder can be established through an agreement with one's fellow co-founders or with permission of the board of directors, investors, or shareholders of a startup company. When there is no definitive agreement (like shareholders' agreement), disputes about who the co-founders are, can arise.
Entrepreneurs often feel stressed. They have internal and external pressures. Internally, they need to meet deadlines to develop the prototypes and get the product or service ready for market. Externally they are expected to meet milestones of investors and other stakeholders to ensure continued resources from them on the startups.[28] Coping with stress is critical to entrepreneurs because of the stressful nature of start up a new firm under uncertainty. Coping with stress unsuccessfully could lead to emotional exhaustion, and the founders may close or exit the startups.
Sustaining effort is required as the startup process can take a long period of time, by one estimate, three years or longer (Carter et al., 1996; Reynolds & Miller, 1992). Sustaining effort over the long term is especially challenging because of the high failure rates and uncertain outcomes.[28]
Some startup founders have a more casual or offbeat attitude in their dress, office space and marketing, as compared to executives in established corporations. For example, startup founders in the 2010s wore hoodies, sneakers and other casual clothes to business meetings. Their offices may have recreational facilities in them, such as pool tables, ping pong tables, football tables and pinball machines, which are used to create a fun work environment, stimulate team development and team spirit, and encourage creativity. Some of the casual approaches, such as the use of "flat" organizational structures, in which regular employees can talk with the founders and chief executive officers informally, are done to promote efficiency in the workplace, which is needed to get their business off the ground.[29]
In a 1960 study, Douglas McGregor stressed that punishments and rewards for uniformity in the workplace are not necessary because some people are born with the motivation to work without incentives.[30] Some startups do not use a strict command and control hierarchical structure, with executives, managers, supervisors and employees. Some startups offer employees incentives such as stock options, to increase their "buy in" from the start up (as these employees stand to gain if the company does well). This removal of stressors allows the workers and researchers in the startup to focus less on the work environment around them, and more on achieving the task at hand, giving them the potential to achieve something great for both themselves and their company.
The failure rate of startup companies is very high. A 2014 article in Fortune estimated that 90% of startups ultimately fail. In a sample of 101 unsuccessful startups, companies reported that experiencing one or more of five common factors were the reason for failure; lack of consumer interest in the product or service (42% of failures), funding or cash problems (29%), personnel or staffing problems (23%), competition from rival companies (19%) and problems with pricing of the product or service (18%).[5] In cases of funding problems it can leave employees without paychecks. Sometimes these companies are purchased by other companies if they are deemed to be viable, but oftentimes they leave employees with very little recourse to recoup lost income for worked time.[31] More than one-third of founders believe that running out of money led to failure. Second to that, founders attribute their failure to a lack of financing or investor interest. These common mistakes and missteps that happen early in the startup journey can result in failure, but there are precautions entrepreneurs can take to help mitigate risk. For example, startup studios offer a buffer against many of the obstacles that solo entrepreneurs face, such as funding and insufficient team structure, making them a good resource for startups in their earliest phases.[32] 2ff7e9595c
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