Question
Asked 9th Aug, 2012

Defining a start-up business

Are all new venture and new firms "start-ups"? Is the same business start-up to new venture or nascent entrepreneurship? I am looking for a more "scientific" definition for business start-up and I have found very a controversial field. Any help is valuable.

Most recent answer

13th Jun, 2016
Samia Elhanchi
Mohammadia School of Engineers
Hi George,
I found your question, while I was looking for a definition of startups. I have been through the different (and interesting) answers. Now 4 years from your post, what was finally the definitions you adopted, is there any other concepts and definitions you have encountered since then? thanks

Popular Answers (1)

11th Aug, 2012
Tim Mazzarol
University of Western Australia
Hi George,
I think that you should not try to over analyse this issue. A "start-up" venture is what it refers to, namely a new business venture created from scratch that has not previously existed. This would differentiate it from a "spin-out" or "spin-off" and also a buy-out or trade-sale where someone buys a business as a going concern.
A potentially useful paper for you to read is;
Birley, S., and Westhead, P. (1994). "A taxonomy of business start-up reasons and their impact on firm growth and size." Journal of Business Venturing 9(1): 7-31.
This paper seeks to classify business owners who started up a new venture as a way to understand their motivations and how this may impact on their firm's success. The abstract, which is quite long is worth quoting in full:
"Based on a survey of 405 principal owner-managers of new independent business in Great Britain this paper explores two research questions— are there any differences in the reasons that owner-managers articulate for starting their businesses, and, if there are, do they appear to affect the subsequent growth and size of the businesses?
The results of the study indicate an affirmative answer to the first question. From the 23 diverse reasons leading to start-up that were identified in the literature, an underlying pattern emerged via the Principal Components Analysis. Moreover, these were similar to those found in earlier studies. Thus, five of the seven components identified by the model correspond to those identified by Scheinberg and MacMillan (1988) in their eleven-country study of motivations to start a business: “Need for Approval,” “Need for Independence,” “Need for Personal Development,” “Welfare Considerations,” and “Perceived Instrumentality of Wealth.” Two further components were identified by this current study. The first vindicates the decision to add a question not included in the previous study that related to “Tax Reduction and Indirect Benefits,” and the second, the desire to “Follow Role Models” was identified by Dubini (1988) in her study in Italy."
"In order to take account of possible multiple motivations in the start-up period, cluster analysis was used to provide a classification of founder “types.” The seven generalized “types” of owner-managers were named as follows—the insecure (104 founders), the followers (49 founders), the status avoiders (169 founders), the confused (15 founders), the tax avoiders (18 founders), the community (49 founders), and the unfocused (1 founder). Further, evidence from the final discriminant analysis model suggested that the seven-cluster classification of owner-managers was appropriate and optimal. However, despite these clear differences between clusters, this was not found to be an indicator of subsequent size or growth, as measured by sales and employment levels."
The answer to the second research question would be in the negative. Therefore, we conclude that, whereas new businesses are founded by individuals with significantly different reasons leading to start-up, once the new ventures are established these reasons have a minimal influence on the growth of new ventures and upon the subsequent wealth creation and job generation potential."
This result is important for investors and policy-makers. It suggests that strategies for “picking winners” solely based upon the characteristics of owner-managers and their stated reasons for wanting to go into business are not supported. Thus, for example, targeting scarce resources to those with high opportunistic and materialistic reasons for venture initiation would miss those with a wider sense of community or those with personal needs for independence who establish similarly sized businesses with comparable levels of wealth creation."
So the study suggests that the focus of research should not be on what is or is not a start-up. This is not really particularly useful. The focus should be on what is the relative success of start-up ventures once launched and why do some do better than others?
I think it is worth noting that far too much attention has been given to researching the psychology of nascent entrepreneurs and the things that may or may not trigger them to commence a start-up. By comparison far too little attention has been given to understanding what happens once they launch and how the management of small business ventures should or should not be approached in order to enhance success.
I also think that too much attention has been given to the "Silicon Valley" business model paradigm in relation to new venture creation. This is where "entrepreneurs" seek to create fast growth start-up ventures fueled by venture capital. Such firms do exist, but they comprise a tiny percentage of all new business ventures that are created around the world. They don't necessarily employ as many people as is popularly believed, and they are often not sustainable. Many are created with the intention of a trade sale exit to allow the "entrepreneur" and any investors to exit within a 3 to 5 year time frame.
More attention should be given to understanding the post-launch survival of ordinary SMEs. As Birley and Westhead point out. The idea that you can "pick winners" solely on the personal characteristics of the nascent entrepreneur or their motivations for launching the venture are not supported by evidence.
7 Recommendations

All Answers (23)

10th Aug, 2012
Ann Rutledge
The Hong Kong University of Science and Technology
That is a seriously interesting question. I have never thought of it, nor am I a research expert on start ups--I have only practical experience--but in my mind, the science of defining it would hang on agreement about how much of the start up is actually "new." Whatever new means.
1 Recommendation
10th Aug, 2012
Rafael Lorenzo
Tecnológico de Monterrey
I like the definition by Steve Blank from Stanford who defines start-ups as a temporary organization in search of a scalable, repeatable, profitable business model. There are other proxys such as VAT registration.
2 Recommendations
10th Aug, 2012
Sebastián Mesples
I understand a "start up" as a new project for which you need to create a new company. This means that the initial investment comes from the founders, because the project does not have credit or cash flow. A "startup" needs to build its brand image from scratch, and often define and develop new markets. Hope this helps
1 Recommendation
10th Aug, 2012
Cyril Demaria
University of St.Gallen
Maybe a way to define it is to extablish what it is not?
> It is not an existing business (it is hence new).
> It is not a spin-off from a firm (otherwise, it would be called a "spin off").
> It is not a not-for-profit outfit (I did not see any association of the term start-up with not-for-profit). It is hence targeting profitability.
> It is not a subsidiary of a firm (it is hence independent)
> It is not profitable yet.
1 Recommendation
10th Aug, 2012
Artemis Saitakis
Foundation for Research and Technology - Hellas
I agree with Sebastian, but it is not a project, its a real company, with limited access to the market. Initial investment can come from the founders and/or from other sources.
1 Recommendation
10th Aug, 2012
Mirjana Radovic Markovic
Institute of Economic Sciences (Serbia)
Go to link to read more about http://en.wikipedia.org/wiki/Startup_company
1 Recommendation
10th Aug, 2012
Suresh Dhameja
National Institute of Technical Teachers Training and Research
Agree with Mirjana. Please go to the link......First line says....Startup companies can come in all forms, but the phrase "startup company" is often associated with high growth, technology oriented companies.......I believe any entrepreneurial new venture can be broadly termed as a Start-Up
1 Recommendation
10th Aug, 2012
Mirjana Radovic Markovic
Institute of Economic Sciences (Serbia)
If you want to be better informed about the nature of entrepreneurship ,I can recommend you the book with the same title .Go to link http://www.amazon.com/The-Nature-Entrepreneurship-Entrepreneurs-Entrepreneurial/dp/3659143111
1 Recommendation
10th Aug, 2012
George Chatzidakis
University of the Aegean
I would like to thanks all. I have found interesting all answers. But i am very confused. The definition of Steve Blank is accepted by more researchers. But i think is little imperfect. His definition does not clear when a startup company stop defining like as start-up. Also, i think high growth start-ups is a sub-set of start-ups.
10th Aug, 2012
George Chatzidakis
University of the Aegean
Ok, when a start-up company become mature company and when a start-up company stop calling as "start-up"?
11th Aug, 2012
Tim Mazzarol
University of Western Australia
Hi George,
I think that you should not try to over analyse this issue. A "start-up" venture is what it refers to, namely a new business venture created from scratch that has not previously existed. This would differentiate it from a "spin-out" or "spin-off" and also a buy-out or trade-sale where someone buys a business as a going concern.
A potentially useful paper for you to read is;
Birley, S., and Westhead, P. (1994). "A taxonomy of business start-up reasons and their impact on firm growth and size." Journal of Business Venturing 9(1): 7-31.
This paper seeks to classify business owners who started up a new venture as a way to understand their motivations and how this may impact on their firm's success. The abstract, which is quite long is worth quoting in full:
"Based on a survey of 405 principal owner-managers of new independent business in Great Britain this paper explores two research questions— are there any differences in the reasons that owner-managers articulate for starting their businesses, and, if there are, do they appear to affect the subsequent growth and size of the businesses?
The results of the study indicate an affirmative answer to the first question. From the 23 diverse reasons leading to start-up that were identified in the literature, an underlying pattern emerged via the Principal Components Analysis. Moreover, these were similar to those found in earlier studies. Thus, five of the seven components identified by the model correspond to those identified by Scheinberg and MacMillan (1988) in their eleven-country study of motivations to start a business: “Need for Approval,” “Need for Independence,” “Need for Personal Development,” “Welfare Considerations,” and “Perceived Instrumentality of Wealth.” Two further components were identified by this current study. The first vindicates the decision to add a question not included in the previous study that related to “Tax Reduction and Indirect Benefits,” and the second, the desire to “Follow Role Models” was identified by Dubini (1988) in her study in Italy."
"In order to take account of possible multiple motivations in the start-up period, cluster analysis was used to provide a classification of founder “types.” The seven generalized “types” of owner-managers were named as follows—the insecure (104 founders), the followers (49 founders), the status avoiders (169 founders), the confused (15 founders), the tax avoiders (18 founders), the community (49 founders), and the unfocused (1 founder). Further, evidence from the final discriminant analysis model suggested that the seven-cluster classification of owner-managers was appropriate and optimal. However, despite these clear differences between clusters, this was not found to be an indicator of subsequent size or growth, as measured by sales and employment levels."
The answer to the second research question would be in the negative. Therefore, we conclude that, whereas new businesses are founded by individuals with significantly different reasons leading to start-up, once the new ventures are established these reasons have a minimal influence on the growth of new ventures and upon the subsequent wealth creation and job generation potential."
This result is important for investors and policy-makers. It suggests that strategies for “picking winners” solely based upon the characteristics of owner-managers and their stated reasons for wanting to go into business are not supported. Thus, for example, targeting scarce resources to those with high opportunistic and materialistic reasons for venture initiation would miss those with a wider sense of community or those with personal needs for independence who establish similarly sized businesses with comparable levels of wealth creation."
So the study suggests that the focus of research should not be on what is or is not a start-up. This is not really particularly useful. The focus should be on what is the relative success of start-up ventures once launched and why do some do better than others?
I think it is worth noting that far too much attention has been given to researching the psychology of nascent entrepreneurs and the things that may or may not trigger them to commence a start-up. By comparison far too little attention has been given to understanding what happens once they launch and how the management of small business ventures should or should not be approached in order to enhance success.
I also think that too much attention has been given to the "Silicon Valley" business model paradigm in relation to new venture creation. This is where "entrepreneurs" seek to create fast growth start-up ventures fueled by venture capital. Such firms do exist, but they comprise a tiny percentage of all new business ventures that are created around the world. They don't necessarily employ as many people as is popularly believed, and they are often not sustainable. Many are created with the intention of a trade sale exit to allow the "entrepreneur" and any investors to exit within a 3 to 5 year time frame.
More attention should be given to understanding the post-launch survival of ordinary SMEs. As Birley and Westhead point out. The idea that you can "pick winners" solely on the personal characteristics of the nascent entrepreneur or their motivations for launching the venture are not supported by evidence.
7 Recommendations
11th Aug, 2012
Lukas Radwan
University of Tuebingen
Hi@all, with the moment of a full market participation a startup becomes mature and is not a startup any more. the problem is, that this a a very relational effect and can only be defined by other market participants of the same market. when other companies recognize a startup and start making startegies towards this startup, than it is not a startup any more. best regards, lukas
2 Recommendations
11th Aug, 2012
George Chatzidakis
University of the Aegean
Mr Tim Mazzarol, thanks a lot, it is really very interesting your answer.
11th Aug, 2012
Alisson Faria
Pontifícia Universidade Católica de São Paulo (PUC-SP)
I believe that a new concept for the Star-up are the projects that combine technology, entrepreneurship and sustainability. In Brazil we have a sense that this innovative project is the EW (Empretecos World) www.empretecosworld.com. EW's experiences has proven to be possible this innovative concept to start-up.
1 Recommendation
13th Aug, 2012
Ralph von Kaufmann
Forum for Agricultural Research in Africa (FARA)
"A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty" definition from The Lean Startup by Eric Ries ISBN 978-0-67-092162-1 Portfolio PENGUIN, 2011
2 Recommendations
13th Aug, 2012
George Chatzidakis
University of the Aegean
Ok, the Ries's definition is a very good and acceptable from many. But, When a start-up company stop to calling as "start-up"? I think this definition does not answer this question. The perfect definition must distinguish easily the start-up company from others. What do you think?
13th Aug, 2012
Lukas Radwan
University of Tuebingen
hi george, what about this: in germany for example you have a legal framework which defines what a startup is, and this definition is a temporal one (I think it is five years starting with the official launch of the startup). but what i actually want to say is, that it might be helpful to know, in which context you are asking your question. because from a legal perspective (eg. subventions) a startup is something else than from a managerial one (eg. uncertanity in deciosion-making) an so on...
6 Recommendations
16th Aug, 2012
Vera Rocha
Copenhagen Business School
George, about your question "When a start-up company stop to calling as "start-up"?" - I think we have not a definite answer for this but this "transition", in my opinion, is closely related to the patterns of survival of firms after birth... Firm survival literature has been showing that failure rates are significantly higher during the first 3-5 years of firm's life. Firms that survive beyond that should not be understood as start-ups anymore, I think... So maybe a start-up company stop to calling as 'start-up' when it survives the "valey of death" (this initial period of 3-5 years). Maybe if you give a look on the literature on the link between firm survival and firm age it would be useful. By the way, I really agree with the opinion of Tim Mazzarol, regarding the need to evalute in more detail the post-entry of entrepreneurs!
3 Recommendations
22nd Aug, 2012
Ricardo Guzman
Pontifical Catholic University of Peru
5 years is the convention taking into account the survival rates and standart business plan evaluations. But id said that any business project should be consider as a start-up, until it stabilizes a business model along with sustainable profit growth. This couldn´t probably happen before 3 o 5 years.
2 Recommendations
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