What is a Startup?
A startup is a young company founded by one or more entrepreneurs to develop a unique product or service and bring it to market.
Typically characterized by high uncertainty and growth potential, startups aim to address a specific market need or problem with an innovative solution.
Types of Startups
Understanding the different types of startups can help entrepreneurs and investors in navigating the complex entrepreneurship structure.
What Are the Most Common Types of Startups?
Here are some examples of common startup types:
- Scalable startups,
- Large company startups,
- Small business startups,
- Social entrepreneurship startups,
- Lifestyle startups,
- Buyable startups.
These are startups that take a unique and innovative idea and rapidly grow the company to achieve the highest possible return on investment (ROI).
Market research is one of the most important things for these types of startups. You can’t find exploitable market opportunities without detailed research.
Other things that influence the success of a scalable startup are:
- Amount of capital – You can’t successfully scale a business without the required capital for workers, equipment, and marketing.
- Human resources – You need highly capable people to grow your startups.
Scalable startups are almost always funded by venture capitalists.
This startup type is most suited for innovators that want to change the industry.
Scalable Startup Examples
Two famous examples of scalable startups are Facebook and Google.
|Mark Zuckerberg started the brand in college with a group of his friends. The app (then website) quickly became super popular, and it grew beyond anything that has been seen to that point.
|Google is known for making acquisitions of smaller startups. The bigger its market share, the more capital they have. Because of the capital, they are capable of attracting top-tier talent. We can see how this helped them scale in the past decade. The richer they become (money-wise and talent-wise), the faster they grow.
Large Company Startups
These types of startups are also called offshoot startups. This is the only startup type that doesn’t start from the ground up.
These startups branch off from large companies to become their own entities. They are backed by the capital of the parent company, and these companies rarely look for outside sources of funding.
Large companies launch new startups when they want to enter new markets, test a new revolutionary idea, or when they want to disrupt a smaller competitor.
These companies are independent of the parent company. This allows them to test new methods and try unconventional things without affecting the brand of the parent company.
Large Company Startups Example
|Sidewalk Labs, an Alphabet (Google) subsidiary
|Sidewalk Labs aims to improve the quality of life in urban centers. They proudly share they are part of Google on their website, which helps them build trust and authority. But, since they are a separate company, they don’t have to follow all of Google’s rules.
Small Business Startups
In a sense, small business startups are the exact opposite of scalable startups. The priority for small business startups is longevity instead of scalability.
Small business startups aim to provide enough financial stability that ensures smooth operations. These startups usually cater to a small target market.
It’s rare for these startups to get funded by venture capitalists. Most often, they get their starting capital from the bank or bootstrapping the business from the founders’ savings.
Another popular funding method is crowdfunding in case the founders need more starting capital.
Small Business Startups Example
Family-owned businesses are a good example of these startups. Other examples include local barbershops, retail stores, and bars.
|BuzzSumo was founded in 2014 without any outside investors. The company grew to $2.5 million in revenue in 12 months. They built a loyal following of free users, which they later turned into paid subscribers.
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Social Entrepreneurship Startups
These types of businesses aren’t built with the goal of building wealth for the founders. Instead, the goal of social entrepreneurship startups is to have a positive impact on the world.
Most social entrepreneurs solve social, cultural, or environmental problems. The phrase “social entrepreneurship” is broad and describes any privately owned organization that strives to reach socially conscious results.
These types of startups often apply for different grants to fund their operations. They also use crowdfunding platforms to find the resources they need to run their business.
This startup type is best suited for you if you have an idea that could solve a big problem for disadvantaged people and communities. You should start a social entrepreneurship startup if profits aren’t what drives you forward.
Social Entrepreneurship Startups Examples
|Arborea is a startup that fights pollution with microalgae. The founder, Julian Melchiorri, developed a bio solar leaf that removes carbon dioxide and produces oxygen at a rate equivalent to 100 trees.
|Orange Fiber is an Italian startup that turns waste from the Italian orange juice industry into sustainable fabrics. These recycled materials are lightweight and were already featured in the works of famous fashion designers.
A lifestyle startup usually starts with a passionate individual sharing their hobby with online followers. Your favorite influencer or YouTube star probably owns a lifestyle startup.
These types of startups are becoming increasingly popular as they enable founders to turn their hobbies into well-paid careers. The rise of social media turned many people into online entrepreneurs.
This is a great startup type if you have a hobby or a passion that you want to dedicate all of your time to. You have to be very focused, driven, and motivated if you want to build a thriving lifestyle startup.
Lifestyle Startups Example
A great example of a successful lifestyle entrepreneur is Tim Ferris. He was an online influencer before that even became a thing.
|Startup Owner Examples
|He reached stardom when he published the book The 4-Hour Work Week. Tim later started a successful podcast that is still going strong. He also authored more books and was featured in some of the world’s biggest online and offline publications. His passion for trying new things and testing unconventional ideas helped him become one of the most followed people on the internet.
|Gary Vaynerchuck, also known as Gary Vee, is an internet personality, speaker and businessman. He cofounded a restaurant reservation app Resy and became famous through his social media presence.
|A writer, a businessman, and a podcast host, Pat Flynn is a prime example of a lifestyle startup gone right. The bio on his website states, ‘I turn dreamers into achievers’, and his business journey is an inspiration to many.
Buyable startups are startups made with the intention of being sold. These are very common in the tech industry.
There are a lot of apps and tools that developers create only to sell to someone else.
This type of startup is most suited for serial entrepreneurs. These are people who are driven by the development of new ideas.
Serial entrepreneurs are amazing at coming up with new approaches and concepts, but they quickly get bored when they start operating the business.
Buyable startups are also a solid option if you have a great idea that has tremendous growth potential. In that case, it might be better to sell the startup to someone who can develop the idea instead of looking for capital.
Buyable Startups Example
Tech giants like Google, Uber, and Amazon are constantly buying small startups with potentially great products. You can check for the latest mergers and acquisitions in the startup space to see examples of buyable startups bought by big tech companies.
|Instagram was released in 2010 and sold to Facebook (Meta) in 2012 for 1 billion USD in cash and stock.
The app was created by Kevin Systrom after his partner didn’t want to post her pictures online because she didn’t think they looked good enough.
Types of Funding for Startups
Now that you know a bit more about the different types of startups, let’s recap what are the different types of startup funding:
|Type of Startup
|Types of Startup Funding
|Venture Capital, Angel Investors, Seed Funding, Crowdfunding
|Large Company Startups
|Corporate Funding, Internal R&D Budget, Strategic Investments
|Small Business Startups
|Small Business Loans, Personal Savings, Friends and Family, Microloans
|Social Entrepreneurship Startups
|Grants, Impact Investing, Crowdfunding, Donor Funding
|Personal Savings, Friends and Family, Small Business Loans
|Angel Investors, Venture Capital, Seed Funding, Acquisition Funding
As of October 2023, several eCommerce and direct-to-customer startups in the United States achieved the status of “unicorn” startups, a term used to describe privately held startups valued at over $1 billion. Among these, the most valuable included:
- Fanatics, leading the pack with a valuation of $31 billion, known for its sports merchandise.
- GoPuff, valued at $15 billion, a rapid delivery service for everyday needs.
- Faire, an online wholesale marketplace, with a valuation of $12.59 billion.
Each type of startup presents unique challenges and opportunities, with funding sources ranging from personal savings and small business loans to venture capital and corporate investments.
As an entrepreneur, make sure to study the different types of business models for startups, to know what type of startup you should invest your time and energy into.
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