What Is a Startup? A Complete Guide

In today’s fast-paced and ever-evolving business landscape, the term "startup" is thrown around a lot, but what does it really mean? Is it just about launching a new business, or is there more to it?

This guide will delve into the essence of startups, exploring their unique characteristics, the challenges they face, and the strategies that can help them thrive. Whether you’re an aspiring entrepreneur, a curious investor, or simply someone interested in the world of business, this guide is for you. Let’s dive in.

• What is a startup?
• Key characteristics of a startup
• Startup vs. small business
• Different types of startups
• Challenges of running a startup
• How do startups get funded?
• Steps to launch a startup
• Startup wrap up

A startup is a small, new, or young company founded by entrepreneurs to introduce a new product or service, disrupt an existing market, or even create a new one. Typically funded by outside sources, startups can be important drivers of innovation, employment, productivity, and economic growth.

A startup is more than just a new business. It is primarily founded to develop an innovative or disruptive idea or product for the market. In contrast, a new small business focuses on serving an existing market and achieving profitability quickly.

Startups often aim to create a new market or niche by developing breakthrough technology, pioneering a new business model, or reimaging solutions to existing problems. This typically involves a lean team, external funding, and a high level of risk.

The world of startups is rich with historical figures who have left an indelible mark on the business landscape. From visionary entrepreneurs to innovative technologists, these individuals have not only built successful companies but have also shaped entire industries.

Here are just a few of the most notable historical figures in the startup world:

Steve Jobs and Steve Wozniak: Co-founders of Apple, they revolutionized the personal computer industry with the Apple II and later the Macintosh. Their innovative approach to technology and design has inspired countless entrepreneurs.

Reid Hoffman: Co-founder of LinkedIn, Hoffman is a pioneer in the social networking space. His insights into building professional networks have been instrumental in the success of LinkedIn and other tech startups.

Here are some typical qualities of startup companies:

• Innovation and scalability: A startup focuses on innovation, with most resources devoted to product development in the early stages. It should also have growth and scalability built into its business plan to adapt to market changes and new opportunities.
• High growth potential: Startups can grow fast by tapping into a large market, offering a unique product, building a strong team, and securing sufficient capital to sustain operations until profitability.
• Use of technology: Technology plays a vital role in most startups, whether developing a brand-new technology, using tech to harness and analyze data for market research and customer acquisition, or streamlining business processes.
• Funding from external sources: Crowdsourcing and funding is clutch for growth — earning funds from founders, loans, investors, or crowdfunding — sustains and grows the business.
• Risk and uncertainty: Take account for risks — either external or internal. Starting a new business often requires significant financial investment, and there's no guarantee of a return. You might face challenges in securing funding, managing cash flow, and covering initial operating costs. Market risks could include economic ups and downs, and having budget for a new team. Startup vs. small business

Several key differences exist between a startup and a regular small and medium-sized business (SMB). A company with 1–20 employees is defined as small, while businesses with 21–100 employees are considered medium-sized. Both types aim to make money, but startups go about it differently. This chart lays out the main differences:

Startups come in various forms, each with distinct goals and strategies:

• Scalable startups focus on rapid growth through customer base expansion, replicable business models, technology automation, and financing. Tech companies like Slack or Dropbox are great examples.
• Buyable startups are built with the intention of being acquired by a larger company. Their founders often prioritize innovation over long-term business development. Instagram, which was bought by Facebook, is a prime example.
• Offshoot startups originate as spin-offs from established companies. While they may receive funding from their parent company, they operate independently with a startup mentality.
• Social startups focus on solving social problems through creative thinking, AI technology, or new business models. They can take the form of nonprofit organizations or mission-driven for-profit companies.

While launching and running a startup is an exciting journey, here are a few challenges that can occur along the way:

• Market competition: Startups face fierce competition from other emerging companies racing to launch similar products, established businesses with more resources, or even established brands that control the market they are trying to disrupt.
• Securing funding: Startups must work hard to convince investors that their idea has a path to success. As the company progresses, founders must continue to raise new rounds of funding, which can be stressful and time-consuming.
• Hiring and team management: Startups must persuade potential employees that the company is worth the risk. With lean teams, every hire is crucial. Maintaining morale is also key, especially when facing setbacks
• Scaling sustainably: Startups must scale strategically. Growing too fast can deplete financial resources, while moving too slowly risks falling behind competitors.

Startups require initial capital to fund product development and operations, with additional funding typically needed as they scale and grow. Here are some proven ways startups secure funding.

Bootstrapping, or self-funding, occurs when startup founders fund operations from their savings or earnings from another business. This type of funding is common in the early stages. It gives the startup time to develop the prototypes, research, and business plans that will help raise more money.

Angel investors are individuals who give startups seed money in exchange for equity in the company. Rather than getting paid off with interest, like a loan, angel investors only get a return on investment if the business succeeds. They also serve as advisors or mentors, giving access to their expertise or networks to help the startup grow.

Venture capital (VC) is funding provided by a venture capital firm that pools investors’ money to invest in startups. VC funding is usually more than angel investments, and they typically get more equity in the company and have a more active role in decision-making.

Crowdfunding is a popular way of raising money from a larger group of people, often through online platforms like Kickstarter or Fundable. Contributors might get perks like early versions of products or even shares in the company. Crowdfunding can also help build a community of future customers and supporters to spread the word about a new company.

Some startups may qualify for grant funding depending on their sector. Various government agencies offer grants in specific categories. While grants don’t require repayment, the application process can be time-consuming and highly competitive.

When entrepreneurs are ready to start a business, there are specific steps they will take on the way to success.

Startup founders start with a problem and an idea for solving it. Much of the initial work involves doing market research, developing a prototype, testing it, gathering feedback, and refining the product or idea. These days, AI for startups can streamline brainstorming, generate ideas, and accelerate iteration.

A business plan outlines the startup’s vision, goals, product or service, market analysis, revenue model and projections, and launch strategy. This document is essential for getting investors to support the venture.

A minimum viable product (MVP) is the simplest version of the product that can be taken to market. Startups use this step to test the market viability and gather feedback before investing more money. The results can be used to raise additional funds as the company scales up.

Startups must set a budget for each growth stage and raise money to get there. Early stages may be self-funded, but as a startup grows, it must reach out to investors for more capital.

Once a product or service gains traction, a startup enters the scaling and growth stage. The focus shifts to expanding product offerings, enhancing marketing efforts, capturing leads, and growing the customer base. Small business marketing software tools like CRM for startups can save time, reduce costs, and keep the company agile. Likewise, SEO for startups can help attract more customers. Small business marketing software automates key marketing functions, while small business sales software streamlines the sales process.

These tools can provide a solid foundation for your startup, helping you manage various aspects of your business:

• Project management tools: Help you organize tasks, track progress, and collaborate with your team efficiently.
• Sales and marketing automation: Automate your sales and marketing efforts, from email campaigns to social media scheduling, helping you reach your audience more effectively.
• Website builder: Create a professional and functional website or ecommerce shop, and build an online presence.
• Communication tools: Facilitate seamless communication and collaboration among teams, whether they’re in the same office or working remotely.
• Analytics and data tools: Track and analyze key metrics, legal information, and gain valuable insights to guide business decisions.
• Cloud storage and collaboration: Provide secure cloud storage and collaboration tools, ensuring your team has access to the files they need, wherever they are.

Sound like a lot? We have good news for you. Everything listed here is available in one tool.

Yes, you only need one tool. Salesforce AI CRM.

The one and only AI customer relationship management (CRM) — Salesforce has just about everything you need to get started. By using the power of AI and Agentforce, your CRM will automate customer interactions, provide insights, and improve customer engagement and retention. And you focus on your startup visions becoming reality.

Startups are an influential part of the business world, offering an exciting opportunity for founders to work on ideas they’re passionate about. Entrepreneurs can innovate, bring creative solutions and products to new markets, and challenge the status quo. While success is never guaranteed, startups have the potential to bring groundbreaking ideas to life — sometimes with transformative, world-changing impact.

Start your journey with a free trial of Starter Suite today. Looking for more customization? Explore Pro Suite. Already a Salesforce customer? Activate Foundations for free.