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The 5 Most Common Types of Startups (And Which One You Should Choose)

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September 18, 2021

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The US is home to over 48,000 startups and is considered one of the most startup-friendly countries on the planet. However, with over 90% of all startups failing, it may take a lot to become the next Silicon Valley unicorn.

What’s the definition of a startup?

According to the classic definition, a startup is a "tech company with fewer than 100 people.”

However, there’s a little more to it than this. Steve Blank, a business guru that many people look up to, defines a startup as a “temporary organization designed to search for a repeatable and scalable business model.”

What makes a successful startup?

Well, it might include having a disruptive idea, a killer investor pitch, lots of perseverance, plenty of funding, and bucket loads of luck. One of the most important things to think about is – what kind of startup do you want to be?

Startup statistics and trends

The number of startup unicorns (privately held companies valued at over $1 billion) has increased from 82 in 2015 to over 590 in 2021

However, the odds of a startup achieving a $1 billion evaluation continue to be less than 1%.

One of the biggest startup trends in 2021 is digital health, comprising 14% of all startups. That’s because advances in this sector are surging in the wake of the COVID pandemic. Healthcare providers desperately want to transform the way they offer services so they can increase access. This means more options for remote healthcare.  

Enterprise tech – or the systems, tools, and platforms shared across an entire organization – is a hot 2021 startup trend. Entrepreneurs are seeing an increased need to streamline workflows, boost communication efficiency, and offer unprecedented access to data for team members working remotely.

Machine learning and artificial intelligence are two other trends taking startups by storm this year. The technology is now broadly defined as a tool that seamlessly integrates with other technologies and not merely as a member of its own separate category. Some of the ways companies use it include improving the online shopping experience, streamlining dining options, and speeding up pharmaceutical development.

Machine learning is also increasingly being used in digital marketing. According to Gartner, “84% of digital marketing leaders believe using [artificial intelligence and machine learning] enhances the marketing function’s ability to deliver real-time, personalized experiences to customers.”

This year, expect machine learning and artificial intelligence to be used to help solve the world’s biggest problems, such as improving patient health outcomes, mitigating the effects of climate change, and reducing the endemic poverty that plagues the planet.  

2 of the biggest challenges facing startups today  

Competition

Intense competition is something that every early-stage company faces on its entrepreneurial adventure. 

To not only survive but thrive in a highly competitive startup environment, you will usually need to define your brand in a uniquely irresistible way. If your customers can't differentiate your company's offerings from your competitors, you’re unlikely to make it. 

What would customers miss out on if they didn’t buy from you? What problem do you solve for them that no other company can solve?

Placing yourself in your customer’s shoes and considering whether you’d buy what your company is selling can be a good basic test of the value of your product. Ensuring that your company stands for quality, dependability, fast and efficient service, or exceptional customer satisfaction can be ways to make your enterprise appealing to your target market.

Running out of money

You’re likely going to need cash – and plenty of it – to get your startup off the ground. 

When cash flow problems raise their ugly head, progress can be delayed, and this can make it challenging to scale your business.

Founders often use cash to fund software or product development, wage marketing campaigns, and hire top-tier talent. Even though it might seem counterintuitive, the last thing an early-stage company may want to do is trim back costs when it's just getting started.

However, there’s often no feeling more horrendous than realizing that your startup is slowly running out of money. You wonder what you’ll do next as the bills pile up and employees stop getting a paycheck.

No matter how bad your situation is, it can be helpful to carefully weigh your options for managing the situation. 

Take a good look at your financial predicament by going over your balance sheet and cash flow statement. Figure out what your long- and short-term needs are. Find ways to reduce expenses and to increase the cash that’s coming into your company.

With that in mind, let’s explore some of the key ways that startups can access funding as they get their feet off the ground. 

How startups get funding

Seed funding

Most startups go through many financing rounds before their companies turn a profit. The seed stage is the first round and is aimed at startups who have a business idea but no money to fund it. Usually, this amount is anywhere from $50,000 to $500,000.

Family members, friends, crowdfunding, and angel investors are some ways to get your hands on seed money.

Series A 

Series A financing is an investment in a privately held startup after it has shown significant progress in building a viable business model. It's also typically a startup that has started generating revenue.

Series A investment can run from $2,000 up to $5 million. In return for the money that venture capital firms and angel investors give you, you’ll usually have to offer them an equity share of your enterprise.

Series B

Series B is the third stage of startup funding, but only the second stage of venture capital financing. It’s appropriate for companies generating stable revenues and maybe even some profits. Many startups that get Series B funding have valuations of $10 million or more and have been in business for approximately five years.

The 6 kinds of startups

  • Lifestyle startups

Lifestyle startups are usually run by entrepreneurs who turn a hobby or interest into a business, but want to keep their business small and have little to no intention to scale. An example of a lifestyle startup might be someone living on the coast who owns a small dive or surf shop. They offer lessons to pay the bills, allowing them more time to pursue their recreational passions.

Some types of enterprises are easier to run as lifestyle startups than others, so it can be worth considering whether your business idea would fit this niche, or whether a different startup type might be a better fit.   

  • Small business startups

Some startups have more in common with your average mom-and-pop brick-and-mortar shop than they do with Apple or Google. These small businesses start tiny and often remain that way for the rest of their existence.

These startups are usually bootstrapped or self-funded. The benefit of a small business startup is that there's often zero pressure to scale or to conform to the needs of investors, often making this a low-key and enjoyable form of entrepreneurship. 

  • Scalable startups

 A scalable startup is often one with big plans. If you have the utmost confidence in your disruptive business idea and have the passion and dedication to grow your company, then a scalable startup setup could be a good fit for you. 

Scalable startups often set out to have a massive impact on the startup ecosystem, so this is an ambitious choice.  

  • Buyable startups

The goal of this kind of startup isn’t necessarily to build a billion-dollar company but to create a business that can then be sold to a larger enterprise. Buyable startups are a great fit for serial entrepreneurs who want to build a business but don't want to operate it long-term.

Many buyable startups are in the app development industry.

  • Offshoot startups

Sometimes, big companies grow stagnant. Changes in customer preferences, new technologies, and crushing competitive pressures can cause a business to flatline.

Often, a great way to reinvigorate a company is to spin a new venture from the old.

Because offshoot startups often have the freedom to act independently from their parent companies, they can conduct business without the intense scrutiny that bigger enterprises contend with. 

  • Social startups

Startups are sometimes stereotyped as being growth-obsessed and money-hungry. While this assessment may be true at times, nonprofit – or social – startups frequently strive to be the exact opposite of these types of enterprises.

An excellent example of this kind of company is Code.org – a charitable enterprise that has raised over $60 million to provide students with opportunities in computer science.

How to choose the startup type that’s right for you

There are startups for every kind of entrepreneur and business idea, and the startup type that you choose will often depend on your unique business goals.

Whether you want to breathe life into a stagnant company, operate a charity that’ll uplift humanity, or create a community-based business, launching a startup can help you attain your entrepreneurial objectives.

When you start a company, one of the first things you’ll need to do is to hire employees. A great way to get started is to enlist our experts here at Hunt Club. We’ll use our proprietary processes and extensive referral networks to get you the talent you need when you need it.

Reach out to us today!

 

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