When is a startup company no longer a startup? Is it post-IPO (initial public offering)? Is it when the founders exit? After seed funding? After Round A? Round B? Round Z? It seems to me that companies have started clinging to the title “startup” for quite a bit longer than they used to.
What prompted this question? Recently, I saw a Tweet from Nexenta’s Mike Letschin. What caught my eye is that it referred to “life as a startup.” Now, I am pretty sure that Nexenta has been around for almost ten years now. In fact, it even states so on its website. I don’t know about you, but ten years seems to me a long time to be a startup. If you were a child in the UK, you would have finished Nursery, Reception, and Infants and would now be in about your last year of Junior Education before moving up to High School. Mind you, this is not a vendor-bashing post; far from it—the two vendors I have chosen to discuss are both “big kids.”
So, what defines a startup, as it is obviously not based on the number of years in business, if Nexenta is any indication?
What about Valuation?
If years in business is not the indicator, what about valuation? This also appears unlikely, as Nutanix is valued at $2B, based on its August 2014 $140M series E funding round, and it still considers itself a startup. So, what determines startup status is not longevity or valuation.
Is It Financial Independence?
Companies like Nutanix and Nexenta are still in the funding rounds stage. What this means is that their generated revenue does not cover their expenditures, so they have to go to the market to raise funds to close that shortfall or fund new progress in their product set. Is this a good indicator of a “startup?” Well, it could be, but for the fact that “established” companies often go out to the market for funds, soliciting investment from VCs if private, releasing more stock to the exchanges if public, or taking out loans. Thus, even though being in the funding rounds stage may be an indicator of “startup” status, it is not definitive.
At this point in my considerations, I went to Twitter and asked, “When does a startup cease being a startup?” I received a few interesting responses, but no slam-dunk answers. @trailsfootmarks replied, “When they stop being paranoid; when they start managing a portfolio of employees, customers and partners.” What really stands out to me is the phrase “When they stop being paranoid.” However, to be fair, I do not know of a company that is not paranoid about something: protecting its research, RFC bids, etc. So really, that cannot count toward startup status.
So, what exactly is a startup? I am even more confused now.
A State of Mind?
Perhaps a startup is a state of mind—not only for a company’s founders, but also for the employees who work there. According to Adora Cheung, co-founder and CEO of Homejoy, “it’s when people join your company and are still making the explicit decision to forgo stability in exchange for the promise of tremendous growth or the excitement of making immediate impact.” If that is the case, then I would argue that both Nexenta and Nutanix are far beyond that stage.
Growth and Focus
So I ask again, what is a startup? One point that rings true for me is that a startup has to exhibit the ability to grow rapidly. It must not be constrained by geography; therefore, a small-town ISP with no desire to service other environs is not a startup, but rather a small business. However, a cloud provider that is in a single town but is set to rapidly expand into other states or countries is a startup. Both Nexenta and Nutanix have shown this element.
Another point is that startups tend to concentrate on a single issue: they see a problem and attack it in a unique and novel way. Again, both Nexenta and Nutanix exhibit this element: Nexenta with NexentaStor, one of the first truly software-defined storage solutions, and Nutanix with its hyperconverged paradigm. Both have identified a significant problem and solved it.
Agility and Motivation
As I see it, “startup” is not a position that a company is in, and it is not time or finance-based. It is a state of mind, a culture. It means the company is dynamic and agile enough to quickly respond to customer needs. Its people are motivated to benefit the company and (and this is very important) feel that they truly contribute to the company’s success, rather than going to work simply to receive a paycheck. If you exhibit these qualities, then you are a startup. Further, a startup is still relatively small, having fewer than 150 employees. It has no more than four or five people on the board. Revenue is important, too.
I do not think that to be a startup, a company needs a ping-pong table in the office or for its employees to travel to work by skateboard or monocycle. The culture of “startup” is kitch and hipster. It makes a company seem desirable and new. This is why companies are holding onto their “startup” tag much longer than they used to. Some say the moniker also gives them a feeling of protection from the big kids in the park. The feeling that they can still say that they have training wheels on their bikes. Is this right? I don’t think so. Companies that are more than five years old and have production products and established sales cycles, a solid customer base, and offices in multiple timezones really should not be labeled “startup.” It is just plain wrong.