Startup


 By: Astha Raghav. 

The term "startup" refers to a company in the first stages of operations. Startups are founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand. These companies generally start with high costs and limited revenue, which is why they look for capital from a variety of sources such as venture capitalists.

KEY TAKEAWAYS

  • A startup is a company that's in the initial stages of business.
  • Until the business gets off the ground, a startup is often financed by its founders and may attempt to attract outside investment.
  • The many funding sources for startups include family and friends, venture capitalists, crowdfunding, and loans.
  • Startups must also consider where they'll do business and their legal structure.
  • Startups come with high risk as failure is very possible but they can also be very unique places to work with great benefits, a focus on innovation, and great opportunities to learn.

Understanding Startups

Startups are companies or ventures that are focused on a single product or service that the founders want to bring to market. These companies typically don't have a fully developed business model and, more crucially, lack adequate capital to move onto the next phase of business. Most of these companies are initially funded by their founders.

Startups can use seed capital to invest in research and to develop their business plans. Market research helps determine the demand for a product or service, while a comprehensive business plan outlines the company's mission statement, vision, and goals, as well as management and marketing strategies.

Examples of Startups

Dotcoms were a common startup in the 1990s. Venture capital was extremely easy to obtain during this time due to a frenzy among investors to speculate on the emergence of these new businesses. Unfortunately, most of these Internet startups eventually went bust due to major flaws in their business plans, such as lacking a path to sustainable revenue. However, a handful of companies survived when the dotcom bubble burst. Both Amazon (AMZN) and eBay (EBAY) are examples.

 

The first few years are very important for startups—a period during which entrepreneurs should concentrate on raising capital and developing a business model.

Many startups fail within the first few years. That's why this initial period is important. Entrepreneurs need to find money, create a business model and business plan, hire key personnel, work out intricate details such as equity stakes for partners and investors, and plan for the long run. Many of today's most successful companies—Microsoft (MSFT), Apple (AAPL), and Facebook (FB), to name a few—began as startups and ended up becoming publicly traded companies.

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