We could define a startup as an emerging company, with a high technological component, strong growth potential and an innovative idea behind it. Considering this definition, you can easily determine if a new business is a startup, but when does it cease to be a startup? Google and Facebook started out as startups, however, they are clearly no longer startups. The question is, when do startups finally come of age?
Marek Fodor, CEO of Kantox and founder of Atrápalo, estimates that startups come of age after two years. However, just like young people, each startup has a different maturation process. Several factors must be taken into account to determine whether a startup has reached its “adulthood”. This decalogue will help you to know if your startup has become a traditional company:
- Break-even point: this is one of the most commonly used parameters when determining whether a startup has reached the coming of age. Once revenues are greater than expenses, the startup is considered to have reached maturity.
- Growth: traditional companies generate revenue, whereas startups focus on growth. Once your business is no longer growing at a certain rate, it is no longer considered a startup.
- Eight-hour workday: Founding a company entails sacrifice and overtime. Once the company is consolidated, a conventional workday of no more than eight hours can be established. Therefore, if the majority of your employees do not work more than eight hours, it is understood that your company is no longer a startup.
- Vacation: for startup founders, this word is practically blasphemy. If they want to keep their business growing, they can’t afford to take a few days off. However, as new employees join the company, taking time off for vacation or any other reason is not a drama. If you can go on vacation without your company becoming unprofitable, it’s because it is probably no longer a startup.
- Relationship with employees: working in a startup is like being on Sunday in the town square: everyone knows each other. So, if you address one of your employees as you would address a stranger, you should consider whether your company is no longer a startup.
- Office: all employees are usually in the same workplace in a startup. Therefore, if you have your own office separate from the rest of your employees, it is usually a sign that the company is no longer a startup.
- Financing: the second financing round usually marks the boundary between startup and traditional company. In other words, once a financing round other than the initial one is raised, the company is no longer considered a startup.
- IPO/Acquisition: a startup is characterized by its independency and a concentration of the majority of ownership among the founders. However, once the startup either goes public or is acquired by a “big fish”, it is considered to be a different type of company.
- Competition: as mentioned above, a startup is characterized by an innovative idea outside the market product line. As soon as a competitor takes up these ideas, or your business seeks inspiration from them, it has probably lost its startup status.
- Innovation: the last parameter, and probably the most important. Many entrepreneurs believe that startup status, like youth, is determined by the spirit, rather than by age. This is, as long as you keep innovating, you will always be able to say that you are in charge of a startup. This idea opens up the startup concept to a multitude of companies that have reached extraordinary sizes, but continue to reinvent themselves every day.
Thanks to these parameters, you will be able to judge whether your business is either a traditional or a startup company. Many founders fear that their startup will age, however, maturing is part of the life cycle. Maturing doesn’t have to be negative, but only if you don’t lose the innovative spirit that characterizes good entrepreneurs. Age is just a number, and so it is in the world of startups.