“Startup” is often treated as a catch-all buzzword among businesses.
But despite popular belief, the term isn’t just reserved for scrappy tech companies in Silicon Valley.
So, what constitutes a startup? In short, they’re typically companies that tick the following boxes:
- Comprised of < 30 employees
- Financed via bootstrapping, outside investors, or loans
- They’re not considered corporations or “mature” yet; they’re typically not ready to be bought out and are either anticipating or in the midst of hockey stick growth
There are five common types of startups across a variety of industries, all of which have different approaches to scaling. In this guide, you’ll learn about each one:
What are the 4 key components of a successful startup?
What are 5 types of startups? How are they different?
Below we’ve broken down real-world examples of the various startup types and how they scale.
Using the criteria above, the average startup has more in common with your average mom and pop shop than it does with Google or Apple.
And yes, the distinction between a startup and a small business is kind of fuzzy. Perhaps that’s why so many people use the terms interchangeably.
Most startups have some sort of “bigger” endgame of being bought out or receiving an injection of cash.
Small business startups are different. From solo businesses and partnerships to small teams, these startups are happy staying startups as they sell their products and services.
And while they’re interested in growth, they grow at their own pace. Such startups are often bootstrapped or self-funded, meaning that there’s less pressure to scale ASAP or be beholden to the immediate needs of investors.
24 Hour Tees is a prime example of one of these types of startups. They think of their workplace as a family, while also running a successful, scalable business. And, they’re proof that you don’t have to be a tech startup to benefit from tech.
Even if you’re a startup that designs T-shirts, you can still save a ton of time and money simply by having an interest in and awareness of technology. Unlike old-school small businesses that get stuck in their ways, companies like 24 Hour Tees invest in tools and automations to level up their business.
RingCentral is part of that equation, providing tools for more comprehensive customer and internal communication. In short, our solution helps 24 Hour Tees provide stellar customer service while keeping up with high demand. You can see more of their story below:
The concept here: small teams build a business from scratch and sell it to a bigger player in their industry.
These types of startups are usually associated with software and tech. Chances are you’ve seen headlines about giants like Amazon or Uber buying out smaller startups. Mergers and acquisitions like this happen all the time.
Getting bought out seems like a pretty sweet deal, right?
However, building something worth being acquired for millions (or billions) is easier said than done.
Consider first that competition is absolutely fierce in any given software industry. Heck, there are thousands of startups to contend with in B2B SaaS alone.
Keep in mind that startups don’t necessarily need to be profitable to be bought out (and many aren’t). This represents a sizable risk for investors, but an even larger risk for business owners stuck trying to sell off a company that’s bleeding money. Look no further than the unfortunate fate of WeWork as evidence of how messy this process can be.
That said, there are plenty of independent app-makers and small teams that spend a few years on a business (or even a side hustle) that gets sold to a larger company. The takeaway? Building a buyable business doesn’t necessarily have to mean “go big or go home.”
The common thread between all types of startups is the need to scale.
This rings true whether you’re a business with dozens of employees or a duo working out of your parents’ garage (hint: RingCentral’s office suite is fair game regardless of how big or small your startup is).
But some startups are easier to scale than others. Most consumer and business apps are examples of scalable startups: once they’ve built buzz and a user-base, it becomes easier to acquire new customers. It’s a sort of snowball effect.
Scalable startups do this by raising capital from outside investors (think: angel investors, venture capitalists, business partners, friends, family). With newfound cash, they can support growth initiatives to score more customers and eventually grab the attention of folks willing to buy them out.
There are startups, however, that can continuously scale themselves without a traditional exit strategy. ConvertKit is a great example of this. The company has received funding in the past, but recently crossed $15 million ARR and intends to maintain its sort of “startup” status:
Also, companies that scale and seek capital don’t necessarily have to resort to millionaires or billionaires to make it happen. In fact, there are plenty of startups such as Oculus that actually managed to grow via crowdfunding from eager, prospective customers.
Not all types of startups are built from the ground up.
An offshoot startup is fairly self-explanatory. Simply put, they are startups that branch off from larger parent companies to become their own entities.
For example, an offshoot business might be established in an effort for a bigger company to enter a new market or disrupt a smaller competitor. Because these startups act independently of their parent companies, they have freedom to do business and experiment without drawing as much attention or scrutiny.
As highlighted by Investopedia, a company like Sidewalk Labs (an offshoot of Google’s parent company Alphabet) is a good example of such a subsidiary.
Startups are sometimes stereotyped as being growth-obsessed and money-hungry.
That said, some startups are specifically designed to do good. Social startups, which include charities and nonprofits, scale for the sake of philanthropy. They operate similarly to any other startup, but do so with the help of grants and donors.
A shining example of a social startup is Code.org, an organization that’s managed to raise nearly $60 million (from the likes of Google and Facebook) to help give students opportunities in the field of computer science.
What are the most common types of startups industry-wise?
To wrap things up, here’s a quick breakdown of the most common types of startups by industry. Although most of them are indeed tech-related, there are definitely startup opportunities in more “nontraditional” fields as well.
- Software (SaaS) and technology
- Marketing and advertising
- Real estate
- Environmental and energy
- Retail and ecommerce
- Blockchain and cryptocurrencies
Which type of startup are you capable of building?
Startups aren’t as one-size-fits-all as many people assume.
Hopefully this guide provides a better sense of the types of startups out there and how they grow.
And remember: no matter which sort of business you’re looking to build, a communications suite via RingCentral’s solutions for startups can help you stay connected with customers as you scale.
Originally published Feb 01, 2021