What Is a Startup? Definition, Examples, and How It Differs From Small Business 2025
A startup is a young company founded to develop a unique product or service and bring it to market. Unlike small businesses, startups are designed for rapid growth, typically aim for 20 percent or higher monthly growth, operate with high uncertainty, and seek scalable business models that can reach millions of customers without proportional cost increases.
What is the definition of a startup according to experts?
Paul Graham defines a startup as a company designed to grow fast. Steve Blank calls it a temporary organization in search of a repeatable and scalable business model. Eric Ries describes it as a human institution designed to create new products and services under conditions of extreme uncertainty.
The common thread across all definitions is that growth, scalability, and uncertainty define startups rather than age, size, or industry.
What is the difference between a startup and a small business?
Startups target 20 to 50 percent monthly growth while small businesses aim for 5 to 10 percent annual growth. Startups typically seek venture capital or angel funding while small businesses use bank loans or personal funds. Startups plan for IPO or acquisition exits while small businesses operate as lifestyle or legacy companies.
The risk profiles differ significantly. Startups face extreme risk with 90 percent failure rate versus moderate risk with 50 percent failure rate for small businesses. Startups must scale globally while small businesses focus locally or regionally. Startups create new markets while small businesses serve existing needs. Startups follow 5 to 7 year exit timelines while small businesses operate indefinitely.
For example, a coffee shop is a small business. A coffee delivery app disrupting Starbucks is a startup.
What are the five stages of the startup lifecycle?
Stage 1 Ideation covers the first 0 to 6 months identifying problems worth solving with no product or customers, founders only, using personal savings. Success metrics include problem validation and founder-market fit.
Stage 2 Validation spans 6 to 18 months building minimum viable product for first 10 to 100 customers while finding product-market fit, typically with seed funding. Success metrics focus on customer retention and early revenue generation.
Stage 3 Early Traction runs 18 to 36 months generating $10,000 to $100,000 monthly revenue, hiring first employees, refining business model, and considering Series A funding. Success metrics track unit economics and growth rate.
Stage 4 Growth extends 3 to 5 years reaching over $1 million annual revenue with 20 to 100 employees expanding markets through Series B and C funding rounds. Success metrics measure market share and profitability path.
Stage 5 Scale or Exit happens at 5 to 7 years with over $10 million revenue and 100 plus employees pursuing IPO or acquisition as market leader. Success metrics focus on valuation and exit multiple.
What are the main types of startups?
SaaS companies like Slack, Zoom, and Salesforce offer recurring revenue with high margins at global scale. These software as a service businesses typically have 70 to 90 percent gross margins.
Marketplace startups like Airbnb, Uber, and Etsy create two-sided networks with winner-take-all dynamics. These platforms connect buyers and sellers, taking a percentage of each transaction.
Direct-to-Consumer brands like Warby Parker and Dollar Shave Club focus on brand building with critical customer acquisition costs. These companies bypass traditional retail to sell directly to consumers online.
Enterprise B2B companies like Palantir and Snowflake have long sales cycles with high contract values. These startups sell complex solutions to large corporations with deals often exceeding $1 million annually.
Deep Tech startups like SpaceX and Boston Dynamics require heavy research and development over long timelines for massive potential. These companies develop breakthrough technologies that can take a decade to commercialize.
What makes a company a startup rather than a regular business?
Four pillars define whether a company qualifies as a startup. Scalability determines whether you can grow 10 times without increasing costs 10 times. Software scales infinitely while services scale poorly and physical products scale with capital investment.
Innovation examines whether the company creates or disrupts markets through new technology like Uber's mobile app, new business models like Netflix's streaming service, or entirely new markets like Airbnb's home sharing.
Growth trajectory measures exponential expansion where 5 to 7 percent weekly growth indicates a startup while 1 percent weekly growth suggests a small business.
Exit intention clarifies the endgame through IPO ambitions or acquisition targeting rather than lifestyle business operations.
When does a startup stop being a startup?
Size markers indicating startup graduation include 500 or more employees, $100 million or higher revenue, or $1 billion plus valuation.
Maturity markers show profitability for 2 or more consecutive years, completed initial public offering, acquisition by larger company, or growth rate falling under 20 percent annually.
Cultural markers reveal hierarchical management structure replacing flat organization, risk aversion replacing experimentation, process prioritization over speed, and maintenance focus over innovation.
What are common myths about startups?
You do not need a revolutionary idea since most successful startups improve existing solutions. Facebook was not the first social network but executed better than predecessors.
You do not need venture capital funding as 78 percent of startups never raise VC money and many bootstrap successfully to profitability.
You do not need Silicon Valley location since 60 percent of unicorn companies are now outside the Bay Area.
You do not need to be young as the average successful founder age is 42 years old, not 22 as commonly believed.
You do not need technical skills since 40 percent of startup founders are non-technical, solving problems through hiring rather than personal coding ability.
Frequently Asked Questions About Startups
Is every new business considered a startup?
No, not every new business qualifies as a startup. A new restaurant is a new business while a food delivery robot company is a startup. The difference lies in scalability and growth intention.
How long can a company call itself a startup?
Companies typically remain startups for 5 to 10 years or until IPO or acquisition. Some companies like Uber maintained startup status for over a decade despite billion-dollar valuations.
What is the difference between a startup and a scaleup?
Startups seek product-market fit while scaleups have found it and focus on growth. The transition typically occurs around $1 to $10 million annual recurring revenue.
Can solo founders build successful startups?
Yes, though it proves more challenging. Eighteen percent of successful startups have solo founders. Most benefit from co-founders providing complementary skills and emotional support.
Do all startups need to have an exit strategy?
No, but the startup model assumes eventual exit for investor returns. Some become profitable private companies without selling or going public.
The StartupStage Approach to Startup Success
At StartupStage, we define startups by ambition rather than structure. You qualify as a startup if you aim to grow revenue 10 times in 2 years, seek to solve problems at scale, value growth over immediate profit, and think in terms of exit rather than lifestyle business.
You do not need venture capital funding, Silicon Valley address, technical co-founder, or MBA degree. We help over 347 startups grow without sacrificing equity. Visit startupstage.com to join founders building ambitious companies on their own terms.