Considerations for a Start-Up Company
The term start-up company became popular internationally during the dot-com bubble when a large number of dot-com companies were founded. A high tech start-up company or startup-enterprise, is a start-up company which specialises in a high technology industry sector such as computer programming, electronics and the Internet.
What is a Start-Up Company?
A start-up company is a company with no appreciable or very limited operating history. Start-up companies are usually new companies in their market research and development phase of development.
A start-up is the early stage in the life cycle of an enterprise where the entrepreneur moves from the idea stage to securing financing, laying down the basis structure of the business and initiating operations or trading.
- Start-up company – a new business venture.
Start-up companies come in all forms, including, life-style companies, high growth ventures, businesses providing services such as a hair salon or bookkeeping, or businesses that provide goods, such as a convenience store, to name but a few.
- Start-ups companies are not necessarily technology oriented.
Nearly all start-up companies operate at a loss at first and some start-ups go through a period where they have no revenue at all. If you can make a profit in your first year of business you are either very good or very lucky.
Start-Up Investors and Funding
Investors are generally attracted to new companies by their risk/reward profile and scalability. Preferred investments have lower bootstrapping costs, low to medium risk with high potential return on investment.
Successful start-ups are typically more scalable, i.e. they can grow more rapidly, than an established business and require minimal investment of capital, labour and materials.
- Start-up is the earliest stage at which a venture capital investor will provide funds, usually on the basis of a business plan along with market and financial projections.
- Investments or loans made at this stage are also called seed money.
Start-ups have several unique alternatives for funding from venture capital firms and angel investors who may help start-up companies begin operations by exchanging cash for an equity stake. Factoring is another option.
- In practice most start-ups are initially funded by their founders.
Research and Development
A critical task in setting up any business is to conduct valid research. The business ideas and/or concepts must be validated and assessed in order to maximise and develop ideas and potential opportunities and to establish a fuller and deeper understanding of their commercial potential.
- If a company’s value is based on its technology, it is important for owners to obtain intellectual property protection for their idea(s) and to develop a sound strategy for protecting their intellectual capital as early as possible.
In the article, "A Market for Ideas" Oct 2005, The Economist estimated up to 75% of the value of US public companies is based on their intellectual property. This figure is often, 100% of a small start-up company.
Location, Location, Location
Your start-up company can be based anywhere, right? Well, whilst start-up businesses have been created in all types of sectors all over the world, just as with property investment, some locations and business sectors are better than others.
- The Internet bubble of the late 1990s was associated with huge numbers of internet start-up companies, but where was this bubble located? Most of this activity was located in Silicon Valley, an area of northern California, USA.
Location can be important if you require certain associations, materials or skills. How many programmers do you think would be willing to work at the North Pole? In the beginning location may not be important, especially if you are working from home, but think about your future expansion (the companies expansion not your waist line), will your companies location be an issue?
When Do You Cease to be a Start-Up Company?
A company ceases to be a start-up enterprise as it passes various milestones such as:
- becoming profitable, or
- becoming publicly traded, or
- ceasing to trade as an independent entity via a merger or acquisition, or
- ceasing to exist.
Unfortunately, most start-ups fall into the latter category.
Are you ready to Start-Up?
Start-ups are created by ordinary people, entrepreneurs, hackers, venture capitalists, web developers, designers and many others involved at the ground level of a new venture. If you want to succeed with your start-up you must learn to thrive on ambiguity and problem solving.
There is very little structure in start-ups, everyone has their own ideas and does things their own way. When it comes to things like standard business models, just remember, these models are created by looking back. If you have a new business model, what can I say… go for it.
Well, I hope you found something useful and enjoyed this article, please don’t forget to let me have your thoughts. See you soon.