What is a startup and how it differs from a traditional business

Many people think a startup is simply a new company. But opening a coffee shop or a small studio is not the same as launching a startup.

Y Combinator co-founder Paul Graham puts it this way: a startup is a company designed to grow fast. The mere fact that a business opened recently means nothing in itself. And Steve Blank, an entrepreneur and Stanford lecturer, defines a startup as a temporary organization searching for a repeatable and scalable business model.

The word “temporary” is important here. A startup's goal is not to remain a startup but, once it has found a working model, to turn into a regular company.

Hence the main difference. A traditional business executes a model that has already proven it works: the customers are known, their problems are understood, and so is the way to make money. A dental clinic or a neighborhood restaurant has to turn a profit almost from the very start, and growth is not essential for it. A startup, by contrast, operates in search mode and under high uncertainty. It tests hypotheses, makes mistakes and changes course, and growth is its main guidepost. Investor money isn't always needed for this, but most often it is raised precisely to make the company grow fast.

Now for an example. In 2007, designers Brian Chesky and Joe Gebbia couldn't afford the rent on their San Francisco apartment and started renting out air mattresses to guests. That's how Airbed & Breakfast came about. In 2009, the founders got into Y Combinator and received $20,000, and Paul Graham advised them to do things that don't scale: go to New York and meet hosts in person. Those meetings helped them improve the product. Then the company, by now called Airbnb, raised $600,000 from Sequoia Capital. The idea proved scalable: it was the platform, not the mattresses, that brought Airbnb into the ranks of the world's largest companies.

The bottom line: a startup is not about age or size, but about search and speed of growth.

Sources:

1. Paul Graham (Y Combinator), essay “Startup = Growth” — as summarized by Zapier and Rework
2. Steve Blank (Stanford) — Startups: Introduction, entrepreneurship.org and Steve Blank's blog
3. Airbnb: Growth Hackers, FourWeekMBA