Startup - what is it in simple words: ideas, types, investors

In recent years, the term “startup” has become especially popular, and many people often get confused when interpreting it. Thousands of entrepreneurial projects are launched every year, but only a small fraction of them can be called a startup. Essentially, this is a creative and innovative endeavor that involves introducing a completely new product to the market.

What is a startup

In most cases, this term is used to refer to a newly opened enterprise, although this is incorrect.

The main difference between a startup and a small business is the innovative basis of the project idea and the features of its development in conditions of increased risks. At the same time, this does not necessarily have to be a new direction in business; it can be an unusual application of existing technologies.

The most accurate way to define it is that a startup is a temporary form of organization, developing in conditions of uncertainty, aimed at scaling and becoming a large corporation. Conventionally, startups can be divided into several types:

• It’s the work of a lifetime when a favorite hobby becomes the impetus for the birth of a business project. This subsequently brings profit and satisfaction to the startup creator.
• Enrichment, as the goal of the undertaking, will push the innovator to search for the most promising ideas, regardless of his preferences.
• Family companies, when family members are involved in the business. In this case, uniqueness is achieved through a special approach to business.
• Global endeavors, when a corporation becomes an absolute leader on a global scale.

Another feature of the startup is its rapid development without geographical restrictions. The newly opened cafe is not set up for rapid growth.

A successfully developing startup achieves colossal financial results in a short period of time.

Peculiarities

The foundations of a successful startup are:

In order to better understand the term startup, you need to know its characteristic features:

• short history of existence. Few people hear about the startup; they rarely talk about it or write about it in the media. Therefore, it is almost impossible to predict its further development;
• there is a development or technological idea that has not yet been on the market;
• The project and its development are at the formation stage. The company is just beginning to develop an audience and occupy its niche;
• Start-ups often use innovations in business management and organization. The most famous companies in the world were early innovators in their field of activity;
• Usually the project is based on innovative ideas and is embodied by the enthusiasm of the creators. It is often inspired by commercial, scientific or social issues. They are also the basis of the project;
• creators use various means to promote their ideas: thematic forums, conferences, and the media. To investors, a startup is presented as a young but promising project;
• a small part of fully implemented projects. Only 15% of startups reach the stage where they become profitable;
• as a rule, the project is quickly implemented;
• commerce is not a prerequisite for the project. It can be social, informational, humanitarian, scientific. A startup is not research that affects the interests of a small part of society.

Stages of startup growth

World practice shows that each innovative undertaking goes through several stages of development, and the process of formation in different directions differs from each other.

Stages of transforming a startup into a stable company:

Pre-seed (seed stage)

At the first stage, the founders already have an idea, but there is no clear plan and understanding of what is needed to successfully launch the project.

Seed

The next step is to analyze the market, develop a marketing strategy and draw up a detailed plan. In some cases, at this phase the search for investors begins.

Prototype

A trial model of a product or technology is being created, which is created for testing and demonstration to investors in working mode.

Alpha version

The creators proceed directly to testing the idea, identifying shortcomings and correcting them.

Closed beta

Taking into account all the failures, an improved product is created for control testing. At this stage, users who are invited to test the product participate in the discussion and evaluation of the project.

Open Beta

The project is launched, the product is promoted and entered into a large consumer market.

At the same time, a startup should be defined as a dynamically developing structure, the marketing strategy of which may change depending on the reaction of users and other significant factors. In addition to the startup development model described above, there is development development as defined by Steven Blank. It includes 4 important steps:

1. “Identification of consumers” - start-ups determine the target audience whose needs will be satisfied by the innovative product.
2. “Verification of potential clients” - initial testing of consumer demand and development of a marketing plan. In case of unsatisfactory testing, the startup returns to the first point.
3. “Attracting consumers” - after the success of the pilot launch of the project, investors are attracted, and the project is launched into operation.
4. “Formation of a company” - development of a corporation as the final goal of the project.

The final stage is the Exit Stage - exit of the startup. There are several options for further development of the project:

• transition to a traditional business form;
• sale of investors' shares;
• launch on the stock market.

The final development scenario is discussed at the startup stage.

Examples of successful projects - TOP 5 startup ideas

There are plenty of examples of successful startups. Every year the directions of commercial thought change. Today coworking and Internet applications are relevant, tomorrow they will talk about private kindergartens or private recruitment agencies.

Today the following startups are the most popular:

1. Organization of a cargo transportation agency working with the active use of Internet technologies. A very promising direction, taking into account the fact that more and more people are making purchases in online stores.
2. Organization of sales or intermediary activities through Avito (the most popular free classifieds service in the Russian Federation). Many people want to sell something, but do not have the time to do so: an intermediary can take over the organization of sales for a certain percentage of the proceeds.
3. Organization of a private kindergarten. Many parents do not want to use the services of municipal institutions, fearing a lack of attention from staff. In a private company, children are given more time, and it is also possible to regulate the length of time the child stays in the kindergarten.
4. Creation of convenient systems for converting electronic currency into cash.
5. Creating effective applications for quickly posting and launching online stores for sales through social networks.

This is just an approximate list that can be expanded ad infinitum. You can find a more profitable and interesting option for yourself: you just have to get creative and put in some effort.

Watch Mikhail Dashkiev’s video from his business youth about what an effective startup is and how to start one:

Creation

In most cases, a startup begins to emerge in the minds of young talented people who are capable of generating bold and unique ideas. According to research, the average age of a startup is 23-24 years.

Most often these are fellow students, but there are also geniuses from school.

The main criterion for creating a promising project is a cohesive team of project founders. It is noted that most of the initiatives stop developing at the initial stage due to the passivity and uncoordinated actions of developers.

Just a group of smart guys is not suitable for a startup. Such qualities as ambition, passion for the project, honesty, openness and interest are required. Drive and energy are important components of the successful creation of a project; people with low energy are not suitable for innovative endeavors.

In most cases, the starters are colleagues or classmates, which explains the unity of thinking and the same set of knowledge and skills. Therefore, it is important to attract a talented marketer to the team for rapid growth and successful exit of a startup from the “embryonic stage”.

Idea

The idea is crucial for a startup. It must be innovative in nature. This does not mean inventing a new industry, but the approach to business and the use of familiar things must be radically different from the traditional model.

Ideally, the team will have several such ideas in stock. An innovative project can turn in the other direction at any stage of its development. It is the ability to be flexible and change course in time, adjusting or updating the ideological direction, that distinguishes a startup from small and medium-sized businesses.

If, in the process of analyzing the consumer reaction at the stage of the first test, the results do not meet expectations, the startup team returns to the seeding stage and carries out new developments.

Blindly following an idea despite the fact that it is unable to satisfy the needs of customers has a negative impact on a startup. In this case, the creators of innovation risk being denied funding, which will inevitably lead to the collapse of the startup.

Embodiment

The start of an innovative project is possible after attracting investors. Lack of funding at an early stage is one of the reasons for the death of the project. Investing capital in innovative endeavors is a risky investment, which is why most startups remain unrealized.

Before launching a project, a study is carried out to determine whether users actually have a problem solved by the innovative invention. Therefore, if the consumer is not ready to pay for the product, or there is a similar product on the market, the startup is not allowed to grow into the scaling stage.

If the forecasts are confirmed and the idea is in demand, a marketing strategy is developed, a detailed plan is drawn up, and functions are distributed among the team. A test release of the product and improvement are carried out, based on the reaction of the target audience.

User approval becomes the starting point for promoting the product and producing it for mass use. If all the initial stages of development are completed successfully and correctly, the implementation of the plan occurs by leaps and bounds.

Examples of the best startups in Russia and abroad

A startup seems to be a promising, albeit risky, form of doing business. With the right approach, it can bring significant income to owners. This is confirmed by successful startups both in Russia and abroad.

Production of spinners

Projects for the production of spinners or sponges in the shape of emoticons turned out to be profitable. With minimal investment, they took over the world, providing owners with income.

Any change in human life implies significant profits for the business that took a direct part in the changes. Apple can be considered the founder of the digital economy, and Uber managed to integrate real driverless taxis.

Startups of various forms are popular on the Internet and have an impact in people's lives. The Airbnb home booking service has managed to influence both economic and social life on the planet. Now you can stay in standard hotels, as well as with private individuals.

VKontakte service

There are the best startups on the Russian market that are copies of foreign products. The services VKontakte and Yandex have become popular. There are not so many innovations, but you can still find them. Vivid examples of original and new products are provided by the Kapersky laboratory company and the Kalashnikov weapons company.

Some projects are designed for a wide audience or even the whole world, while others focus on working with their target groups. Both can be successful, bringing significant profits to owners.

Project payback

It is impossible to accurately predict over what period of time income will cover investment costs.

A startup is something explosive, when by investing 5 million rubles, after a while you can get 10-20 times more. This is the principle that venture capital investments operate on. An investor invests in several promising projects, even if one of them “takes off”, he covers the costs of all the others.

To evaluate a startup that is not yet profitable, several methods are used to evaluate the future of the enterprise. These are assessment sheets, calculation of the terminal value, which takes a period of 4 to 6 years.

At the same time, investors pay attention to:

• team competence;
• market opportunities;
• assessing the liquidity of a product or technology;
• competitive environment;
• the need for additional investments.

First of all, investors place their bets on the creators of the project, since a good team will be able to improve a bad product, and a good product will not in any way affect the potential of the employees.

The amount of time for a return on investment largely depends on the project itself. For one, one year will be enough, while in another area it will take 3-4 years. At the stage of presenting a startup to investors, it is customary to announce a period of 3 years.

Kinds

There are many types of projects in the startup classification. The most popular of them are:

1. Classification according to the product manufactured or service provided.
2. Classification by science intensity.

Based on the characteristics of the goods or services they produce, startups are divided into:

Based on their knowledge intensity, startups are:

1. Traditional, formed on simple but processed ideas.
2. Innovative, based on scientific discoveries in the field of high technology.

Scaling

Innovative projects differ from entrepreneurial activities in the field of small business due to their rapid growth. All of them are launched using a “scalable business model”. For example, the mobile messaging app Snapchat has grown from 0 to 100 million users in 5 years.

According to the classification used by Silicon Valley experts, the benchmarks for startup success are:

• exceptional – an increase of 10% or more in 7 days;
• high – 5-7%;
• low – less than 2%.

When a young company is in the process of improving and adjusting its existing business model, its growth rate can vary widely. Once a startup stops growing, it indicates that the company has entered the mature business stage.

Development prospects

The very concept of a start-up project presupposes an innovative approach. But still, beginning businessmen often think about the choice: a traditional product, but with high competition, or a new product, a market segment for which they may have to create. Typically, startup developers choose the latter.

Today, the interest of entrepreneurs and investors in startups is steadily growing. Although companies with innovative products are not always successful. According to statistics, only 10% of innovative ideas are successfully developed.

According to forecasts, the following niches will be in demand in the coming years:

• financial services;
• technologies to improve the environment;
• medical technologies;
• telecommunications and media;
• health projects;
• social network;
• sphere of consumption.

How to find an investor

It is impossible to reach the scaling stage without significant financial investments. Therefore, it is important for startups to start looking for investors as early as possible. Just a few years ago, startups could find financial support from friends and family, as well as their own savings. But in most cases this was too little.

Today, startups have several ways to find investment:

Seed investments

At the Pre-seed stage, when the creators cannot present anything other than a brilliant idea, few people will believe in the future of the project. At this stage, it is possible to get help from relatives and private investors who will bet on long-term growth prospects.

Venture investors

Private venture investors, through a comprehensive assessment of the profitability of the project in the future, invest in promising innovative projects. Such transactions often remain “in the shadows” and are not disclosed by both parties.

Venture funds

They distribute investment capital to a startup that is in a developing stage. In this case, it is possible to calculate future income and take into account risks.

Business incubators

Organizations specializing in supporting gifted entrepreneurs help startups from developing a project idea to its commercialization. Business incubators provide investment funds, premises, and consultants.

Initial public offering

An IPO is an offer to sell shares to an unlimited number of persons in order to raise funds.

Financing mechanisms

Previously, investors were wary of startups, but nowadays they appreciate the potential of these projects. Investing in startups is carried out by:

• business angels , choosing a suitable project in order to invest their own money in it. It is best to have such investors for startups just starting a business. They do not manage the activities of the organization and the processes that occur in it. But they are ready to invest capital in an idea if they consider it promising in terms of profit in the future;
• venture capital funds that distribute money to investment funds. Such funds usually analyze the situation in an operating company, when there are a minimum of possible risks and it is possible to monitor its activities.

Startup ideas

A unique and popular idea determines 50% of the success of a startup. Innovations in the following areas are of particular value:

1. Robotics are technologies and products that can make a person’s daily work easier. For example, robots are used to clean supermarkets, do farm work, robot vacuum cleaners and others.
2. Energy - the search for new resources and ways to obtain safe and cheap fuel will always be valuable.
3. Medicine – new treatment methods, fresh developments of medical equipment, medicines that are available to a wide range of consumers.
4. Information technology – the creation of “assistant programs” for doctors, rescuers and other professions.
5. Finance sector – users value various services that facilitate monthly payments, analyze the budget and help increase assets.
6. Communication means - fresh offers for cheap and high-quality information exchange.
7. Nutrition and environmental projects - humanity will always be interested in quality food products, as well as unusual solutions for agriculture.
8. Educational programs - innovations in the field of education, the latest developments for quality learning and easy memorization of material.

Video blogging

Blogging for the purpose of further implementing a business project is a bad idea for a startup. Hundreds of projects with various topics have already been successfully implemented on YouTube. And creating a similar product to repeat someone else’s success is a dubious prospect.

Much more interesting is the promotion of innovative technologies for teaching any skills or school subjects, which can be of interest to millions of viewers not only within the country, but throughout the world.

Mobile applications

One of the most promising areas today. In the age of information technology, a modern person cannot do without a mobile phone and other gadgets. Creating useful applications can make a consumer's life much easier. These could be various instant messengers for communication, programs for cash accounting and other developments. The main thing is that the new application is innovative and unique.

An example of a successful startup: Slack (USA), a messenger for corporate correspondence, launched in 2009. According to the Financial Times, it is the most expensive project in this area - $5.1 billion. Today, the number of Slack users is 5 million people, and the company's turnover is $1 billion.

Internet projects

The field of information technology is one of the most popular for startup development.

The Internet has millions of users around the world. The World Wide Web allows you to make acquaintances and communicate with people from different parts of the world using social networks. Facebook and Twitter were also startups once. You can create an innovative project not only for the purpose of communication; servers for quickly finding the necessary information and others are in demand.

For example, in the United States, the Houzz project was launched in 2009 with an investment of $400 million. This is a web platform for homeowners who want to hire a builder, designer and other specialist for interior renovation. Today, 1 million accounts of construction business professionals are registered on the server and more than 9 million photos are posted in the portfolio.

New product or technology

An invention that has no analogues in the world and claims to be very popular among consumers is an ideal idea for an innovative project. At the same time, it is necessary to expect that the innovation will become an indispensable attribute for a large number of users. A new product can relate to any industry, the main thing is that consumers are willing to pay money for it.

Probably the most striking example was the development and release of the first personal computer, the Apple II, which was carried out by Steven Jobs and his companion Wozniak. This was the first mass product of the future famous corporation.

Interesting ideas for restaurants and cafes

Business ideas for a startup in the restaurant business can have several directions: a new approach to service, the invention of unusual dishes, the presence of robot assistants. In addition, various applications are popular, with the help of which a cafe visitor can find out about promotions and offers of the cafe, fill out a form using the receipt number to improve the quality of service and receive a discount on their next visit.

For example, Menuforyou, where visitors view the menu and place an order electronically on a tablet. At the same time, the scoreboard shows the rating of dishes and the preferences of visitors in the form of likes under the description of the dish. This approach to service easily increased the average check by 15%.

Agricultural business

Innovation occurs in all industries, and agriculture is no exception. Agribusiness always remains in demand. People will always eat natural foods and drink milk. But startups in this area have long payback periods, which discourages investors.

Despite this, in world practice there are examples of successful development of startups in agricultural business:

• automated hive Flow - a device that collects honey without harming the bees;
• Kera-Tech is a waste feed additive produced using a special strain of microorganisms that decompose waste, converting it into protein mass;
• 30Sec Milk is a plant that processes and packages milk straight from the cow;
• Real Vegan Cheese – production of vegetarian cheese by creating an analogue after a detailed study of the molecular structure of the cheese.

How to come up with an idea for a startup - a list of tips

I understand that teaching aspiring entrepreneurs how to come up with ideas is not entirely correct. Intuition, experience, knowledge and our mental abilities are different for everyone. Some come up with ideas on the go, some need incentives, some meditate. Therefore, I suggest that you familiarize yourself with the list of general tips for generating ideas.

1. Think in the "future". Assess where technology and the world are heading.
2. Be professional. If you are a professional in some field, then it is worth developing your skills in this direction. Of course, it may also be that a great idea comes to a person in a completely different field of activity and it will be brilliant.
3. Look for ways to solve problems. Most new startups solve someone's old problems. Perhaps they exist in your field too, and you yourself are tormented by some annoying problems.
4. Think about implementation. It is quite possible that some problems have solutions, but their implementation requires such effort that it seems an unrealistic task. For example, implementation is too expensive or is not legally permitted. So perhaps it is better to think through what is real. Although, on the other hand, many ideas that long ago seemed impossible are now being used everywhere.

Tips for startups

To create a startup that will survive into adulthood, it is important to work through every stage of the project, without missing a single detail. To do this, you can use the following tips:

Create something that would be useful to you

When working on an idea, think about what you personally lack and whether you can do without it. When developing a product, think through everything down to the smallest detail, get “infected” with the idea, and work on what you are really interested in. Remember the founders of the online platform Houzz, they created this project because they themselves experienced difficulties during renovation.

Bring together a team of professionals

It is the right choice of employees that already guarantees the further advancement and development of the team. Select ideological, creative, ambitious people who will be passionate about the common cause.

Analyze the market

If, when launching a project, you notice potential in a different direction, do not be afraid to turn in the right direction, change the strategy and business plan. In the beginning, Twitch was not created as a video streaming service.

But paying attention to the general passion for watching computer games, the founders focused on this area. In 2018, the service was visited by 15 million unique visitors per day.

Don't be afraid to take risks

Once you've decided on an idea, don't be afraid to take action. The real risks are those who do nothing. Start with small steps and test the product or technology in action. The creators of many innovative projects do not fully believe in success, but they still act and often achieve colossal results.

Test your invention

Friends and acquaintances can act as consumers. No matter how brilliant the idea may seem to its founders, listen to outside opinions. For an expert assessment, involve company employees, discuss the shortcomings together, and strengthen the advantages.

Keep an eye on pricing

When starting a product release, do not set the price too low in order to lure the buyer with cheapness and quickly test the innovation in action. There is a possibility that people in the future will not pay you the amounts that represent the real cost of the new item.

Attract investors

It is hardly possible for a startup to reach the stage of a mature business without large investments.

Therefore, be meticulous in choosing investors, present your project clearly and succinctly, and confirm the potential of the initiative. Good funding will be the main driver of a startup on the path of rapid development.

Conclusion

Based on the above, we can determine that a startup is a project whose main goal is to improve the quality of life of people. It is the idea that is the driving force, and not the desire to earn more money. At the initial stage, startup will require maximum effort and attention of the creators. But maximum impact cannot be achieved without an ambitious team. Look for an idea, and if it is worthwhile and the work is diligent, it will literally make you rich, no matter how fantastic it may sound.

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Author of the article Victoria Pchelinova Freelancer, creative and business