Stability, Market or Culture: What Determines When a Startup Stops Being a Startup?

Saying you work in a startup sounds much more fun and ‘cool’ than saying you work in an ordinary, boring company. Calling yourself a startup has a certain appeal, but simply put, a startup is a company in the early stages of business. And that means that at some point, some companies outgrow that level and we can no longer call them that – no matter how popular it may be.

Of course, there are many steps and changes that a startup must go through to operate and function as a successful company, but while we can list a number of foreign and domestic companies that started ‘in a garage’, became successful, and are no longer called startups, do we know when a startup actually stops being a startup?

Definition of a Startup

Table tennis in the office, a casual environment, and a young team – things that people often associate with the idea of a startup are also proof that we know little about what the term that has marked the business scene for a long time actually means. Do we even know how to define what a startup is? Because, interestingly, knowing when a company can be called a startup leads us to know when we will stop defining it that way.

In its purest form, a startup is defined as a company in the first phase of its business, but Tomislav Car, the director of Productive, explained that there is no one exclusive definition of a startup.

– It is usually said that a startup is a company looking for a scalable business model. So, as long as the company is somewhat ‘wandering’ and looking for how to make a profit, we can call it a startup. Another definition is that it is a company that is still relatively small and in its early stages and is growing very, very quickly. When we say ‘growing very quickly’, we usually mean a growth rate of 100 percent or more annually – emphasized Car.

– There is no universally accepted definition of a startup. In the financial sector, we consider a startup to be any company that has managed to prove its product in the market through sales and is in a phase of accelerated growth, and at some point between five usual rounds of financing – further explained Renata Brkić, a partner at Feelsgood Capital Partners, adding that success in achieving growth in the early stages of development is crucial for the stable development of a startup. —

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Stevica Kuharski, a representative of Fil Rouge Capital, emphasizes that his favorite definition comes from Steve Blank: A startup is a temporary organization designed to search for a repeatable and scalable business model. In that sentence, Kuharski believes, the goal of the startup, its start, and lifespan, and business model are discussed.

The Early Phase is Key

Statistics say that only one in ten established startups succeeds, which means – no matter how fun and simple the term startup sounds to someone, the reality is far from it. Because to even be called a successful startup requires a lot, and to get out of that phase requires even more.

Hrvoje Ćosić, co-founder and director of Aircash, briefly states that the key factors indicating that a startup will succeed are: a good idea, a quality team, a good market strategy, and a good financial situation.

It is completely correct to have high operating costs at the beginning of starting an entrepreneurial story, adds Ivan Bešlić, COO of Sofascore, however, it is crucial to assess the scalability of the business and that the product has interest ‘beyond the circle of family and friends’ and that complete strangers show interest in what we do.

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Stevica Kuharski,
 

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— – Indicators of stable and rapid growth are key to the survival of every startup. Product-market fit is achieved by a larger number of customers and users whose numbers grow month by month at a double-digit rate. It is difficult to predict the success of a startup, but it is easy to predict its failure. If there is no team cohesion, clear leadership and vision are lacking, and there is no clear vision of customers and the market, the startup will certainly not succeed. Of course, the lack of a clear vision of customers and the market at a given moment can be compensated for by large amounts of investment to develop the market and create customers. For success, the founders and their focus on the business they are developing are the most important; without that, there are no prerequisites for growth – explained Kuharski.

When is a Startup No Longer a Startup?

And besides having examples of good startups in Croatia, we also have dozens of examples of companies that have since outgrown the startup phase. Brkić points out that most of them are in IT, citing examples such as Infobip, Span, Bellabeat, Microblink, Photomath, Business Intelligence… But how do we know that all these companies that started as startups are no longer? When can we say with certainty that ‘this is no longer a startup‘?

Ćosić believes that there is no unique criterion that defines the moment when a startup becomes a mature company, but there are some criteria that are often used, such as achieving consistent and significant revenue.

– As a startup grows, signs indicating business growth will usually appear, such as an increase in the number of employees, expansion into new markets, and an increase in production or service capacities. Also, a successful startup will develop a sustainable and scalable business model, which may include a diversified revenue stream and a clear path to profitability – explains Ćosić.

At the moment when a repeating and scalable business model is found, the organization becomes an ‘ordinary’ company with faster growth than average, emphasizes Kuharski, but while some companies reach that phase faster and easier, and others slower and harder, what they have in common is that during the development and growth phases they need external financing and investments. Thus, Brkić defines that, in addition to stable operations in the markets they have chosen, a company stops being a startup when every subsequent endeavor can be financed from its own funds accumulated from the sale of its products or services.

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Tomislav Car

foto Ratko Mavar

— Using the example of Productive, Car explains that it falls among ‘scaleups‘ – a company that continues to grow rapidly but is organized with processes, teams, and a clear vision, strategy, and market. And as he explains, for a company to stop being called a startup, it is crucial that it finds its market. Why the market? Car emphasizes that every startup needs to have three key elements: a market, a product, and a team. However, even with an excellent team working on a completely innovative product, if there is no one who needs the product – then the whole thing often makes no sense and companies fail.

– When clients and users seek you out, that is, your product – at that moment, a more stable scaling of the company begins and we no longer talk about a startup – emphasizes Car.  

However, since almost everyone perceives the word startup in their own way, perhaps not everything is about revenue and the market. Bešlić, despite the definitions, points out that the boundary between a startup and a corporation is often made by ‘the feeling that stretches through the hallways‘.

– Startup culture is characterized by rapidly changing direction, shutting down unsustainable projects, and rolling out new ideas overnight, quickly following trends. Corporations are inherently slower, permeated with processes and plans, which deprives them of the luxury of quickly and, for business, financially acceptable shifting focus to other topics. To counter this, smaller teams are created within corporations to ensure speed in decision-making – explained Bešlić.

What Comes Next?

And precisely because of this, when it exits the startup phase, adds Bešlić, the company becomes more stable, resilient to short-term market changes and employee fluctuations, while the downside can be slower decision-making and missed opportunities for events that occur unexpectedly and can positively impact the company’s business.

However, generally, when a startup becomes a mature company, it can shift its focus from rapid growth and experimentation to more sustainable and stable business practices, such as increasing profitability and achieving long-term financial stability, notes Ćosić.

– Nevertheless, even as a mature company, innovation and the ability to adapt to market needs are still important factors contributing to success. Startup companies still stand out for their ability to quickly adapt and innovate, making them competitive compared to traditional companies in the same industry – adds Ćosić. —

Hrvoje Ćosić 

foto Lider Media

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In addition, what will happen to the company later most often depends on the owners themselves.

– A company can continue to operate stably in the markets and industries it has chosen for years, achieving minimal annual growth. This is often the choice of owners who are not inclined to separate from their project. Such owners, after a number of years, face the challenge of how to smartly ensure succession. Another choice for owners may be the desire to continue growing, which involves separating the owner from the company by selling the majority of their stake to new owners who may be investment funds or larger players in the industry. The final exit of the owners from the company occurs through an initial public offering, or going public, in which case the company becomes a public company – concludes Brkić.