Anybody can create a startup. But only a few will have the tools (and luck) to actually make their startup successful. One of the reasons we write our articles is to give everybody those tools — and knowledge is a powerful one to have. With this primer on startups and how they work, we hope you’ll be just a bit more, um, primed to take the leap towards making one of your own.
What is a Startup?
A startup is a company that is created because there was a need to solve a particular problem, like an under-served market or a lack of competition for a product/service that’s out there. This motivation for creating a startup is also called a pain point, or a source of frustration that is ripe for pickin’ (i.e.: solvin’). A startup founder wants to change an existing industry, or at least disrupt it in some big way (and make a ton of money doing so, of course).
“What pains you, Jim?” “It’s the industry, Doc! I just can’t take the status quo anymore!”
What kind of people create and work on startups?
More than anything, to be a successful startup founder you must have a “startup mentality.” This means you need to think about creative ways to solve old problems that have existed for a long time, or new ones that might pop up along the way. You also have to look for the best ways to serve and retain customers, and know how to effectively use resources while saving money at the same time (i.e.: bootstrapping).
People who create and work on startups don’t sit at cushy desks collecting biweekly paychecks and paid time off. Instead, they’re busy executing fast-paced projects on the fly with a team of people that have various backgrounds, personalities, and strong opinions. They hustle everyday to provide high-quality low-cost services/products that bring in enough money to pay office rent, employee salaries, insurance, taxes, fees, vendors, more taxes, and other expenses. Forget about making a net profit (i.e.: more total profit than total expenses) — most startups don’t earn a net profit in their first year!
“What I love about him most is that he hasn’t brought home a paycheck in months!”
How long does it take a startup to become really successful?
You know a startup has made it to the big leagues when it becomes a corporation — a legal entity separate from the people who own and run it. It can take years for that to happen. Why? Because the timeline of a typical startup goes like this:
In our tech-crazy world, the rise (and fall) of startups have generally coincided with the creation of new technologies and outdating of old ones. So first, a new technology emerges (as it always does). Then, somebody builds a startup to use that technology in creative ways to sell a product/service. Next, there is usually a long and costly process of trial and error as the startup tries to figure out the best way (i.e.: the best business model) to sell its product/service.
Once the startup has built a large enough customer base, competitors start to notice and offer their own version of the same thing. Eventually the government also sees what’s happening and passes some new laws (under the guise of “protecting the public interest”) that affect the way the startup does business. A leader from among the pool of competing startups finally emerges — and it’s usually the startup that has effectively modified its original business model to respond to the customers’ changing needs, the government’s changing laws, and the competitors’ changing market prices.
Newer technologies eventually emerge that render the old technology, upon which these competing startups were based, now obsolete.
Circle of life begins again.
“Naaaaaants ingoynama bagithi babaaa!” (Translation: “Nooooooobody uses an iPod anymoooore.”)
Here’s an example (purely hypothetical, of course):
Suppose more and more people start to use cell phones that have GPS (global-positioning system) and e-pay (electronic payment) technologies built in them. The GPS tech helps people figure out how to travel to other places, and the e-pay tech allows them to pay for things without pulling out any physical credit cards or cash.
You, being empowered with knowledge by this article, create a car-sharing service that uses GPS and e-pay technologies to let people drive around others in their personal cars for fees lower than traditional taxis. You think drivers will like your startup because the e-pay tech guarantees passengers will pay for their rides. You think passengers will like your startup because the GPS tech makes finding a ride so much easier than standing at a street corner and hoping for an empty cab to drive by.
You call your startup Uber…I mean…Super (just go with it, ok?).
You save money by hiring a 12-year old with Microsoft Paint skills to design your logo. Close enough.
Now you need money. So you beg some rich people to invest in your startup idea so you can actually build something functional and test it in a small market at first. After a few months of trial runs and offering discounts to new users in order to reel them in (which costs you some of that money, by the way), you build a growing base of loyal customers.
But suddenly your startup software, website, or infrastructure can’t keep up with your users’ demands and you experience a lot of technical difficulties. Your users get frustrated and write bad online reviews about your startup. So you spend money on a bigger and better development team to fix all the glitches, and a marketing team to produce one of those quirky ads that play before a YouTube video. Slowly, you get more positive reviews than bad ones.
Now competitors show up and offer customers the same exact thing as your startup but for lower fees. Where did they get the money to develop their startups so quickly and catch up to you? You have no idea. So you spend even more money tweaking your product and doing market research about how to retain customers and bring new ones in faster than everyone else.
Fortunately, one of your competitors is Dryft — a car-sharing startup where drivers transport passengers by drifting through every sharp turn, fast and furiously.
Then the government decides it wants to regulate your business for the interest of public safety so it passes new laws that make it harder for you to keep your expenses low. You spend even more money on a legal team to overcome these restrictions.
After all that, you realize your customers now want your startup to do more than just let them share cars. So you spend, yes, even more money expanding into other areas like food delivery. Basically, you’ve spent a lot of money just to get your startup off the ground. And you keep spending more and more just to make it survive.
It’s been years now since you’ve launched and your startup is hugely popular but has yet to give you any net profit. You’ll get rich one day. But not today.
How do I know when I’m ready to launch my startup?
The point is, if you’re looking to create a startup, you need to ask yourself if the startup lifestyle and mindset that are required to develop a successful business from the ground up at a fast-paced speed in a dynamic free market is something you could handle. To you, the idea of making huge amounts of money should be an afterthought — at least initially. It’s the passion for developing and launching something meaningful that should motivate you. You shouldn’t be discouraged by failure. You should be driven by it.
Too long, didn’t read (TLDR)? We get it. We’ll summarize our main points for each article at the bottom:
Startups are businesses created to solve a particular problem (pain point). You need to have a startup mentality to make a successful startup. That is, you have to know how to develop and modify your business model in creative ways to overcome obstacles at minimal cost (called “bootstrapping”). Startups are crazy places to work in because there’s no regular income flowing in — at least in the beginning — so everyone who works at a startup usually has to hustle constantly to make the company profitable quickly. It can take years for a startup to become a legal corporation that produces a net profit.
(Disclaimer: Our writings are created strictly for educational purposes only and should not be construed as legal advice in any way. Communications made with us through this website does not create any attorney-client relationships.)