According to Microsoft, there are more than 150 million startups in the world with 50 million emerging every year. This rapid incline of startups and in fact the very term ‘startup’ has been aggravated by the 2021 funding bull run, when venture capitalists liberally awarded higher rounds and valuations than set precedents, before dolefully pulling back amidst the current economic slowdown.
But not every fledgling business is a startup. The term ‘startup’ was first coined by Forbes in 1976 for more experimental businesses looking to disrupt the current marketwith innovative ideas, rapidly scaling in the process.
In contrast, SMEs (Small and Medium sized Enterprises), are independent businesses that serve the existing market to make a (more immediate) profit by ordering their company on existing business models and ideas. SMEs are generally more risk averse than startups, focussing on long term value rather than innovation. According to Forbes, 80% of SMEs survive their first year and 50% endure past the dreaded five year mark while 70% of startups fail within the first five years.
Though startups run a higher risk of going bust, they also have a higher chance of becoming trail blazing unicorns with their unique approach to problem solving. But from a team of four working out of a home office to a company large enough to acquire other companies, there needs to be some distinction. After all, even Facebook was considered a startup once.
This distinction can be made on a number of metrics such asteam sizes, valuations and the amount of revenue a business is generating. In 2018, Alex Wilhelm, Editor-in-Chief at TechCrunch, claimed a business is no longer a startup if it has either reached a revenue of $100 million, has a team of over 500 employees or is valued at or higher than $2.5 billion.
Wilhelm was writing for the American market. For Pakistan, however, where the startup ecosystem is still in the process of maturing, Wilhelm’s original estimation seems to ring true. In 2014, four years before his revised metrics, he stated a business is no longer a startup if it has either reached a revenue of $50 million, has a team of over 100 employees or is valued at $500 million or above
This provides us with an interesting baseline that helps businesses hone in on their identity and purpose while simultaneously creating a more rigorously curated catalog of startups for investors and Limited Partners (LPs). Being able to distinguish whether your business has graduated from being a startup is also essential to the kind of infrastructure a business may invest in.
While there’s no one definition set in stone for what it means to be a startup, almost all of them underline the indispensability of resilience. It’s hard to describe a term as fickle as ‘startup’, but attempting to do so is essential in helping founders navigate their identity and trajectory in the entrepreneurial landscape.