Defining the idea of a tech startup should be easy. In the established Silicon Valley definition, a startup (or start-up) is a new company funded by investors rather than revenue, that produces or uses technology to do something disruptive not being done by incumbents. Based around a core of entrepreneurs, a startup makes no assumptions about what is possible or the buying behaviour of customers. Whatever a startup does it does as quickly as possible before rivals notice.
This works as a general description but more recently the meaning of the word has started to slide a little. In the late 1990s a wave of internet startups grew from zero to billion-dollar turnovers in what seemed like months. Google probably hit a billion dollars of turnover within two years of being founded with fellow 1990’s brands such as eBay, Yahoo and Amazon reaching that mark with similar speed.
Weirdly, many of them carried on calling themselves ‘startups’ even when they had four-figure workforces, large turnovers and even, shockingly, profits. The startup was no longer a business state but a mental one. Everybody wanted some of the glitter. Large US enterprises started funding startup spin-offs while others invested in the real thing through venture funds. Well-known tech giants, once startups themselves, seemed especially keen to pump money into the very firms they secretly feared might one day supplant them.
All the world's in early stage
Despite downbeat post-2008 predictions, the US is still generating startups like never before but the word has shifted again. Several things have happened at once. First, the sheer number of firms being funded with cheap money in hot areas like security and mobile technology has eroded the idea that being a startup signifies specialness. At long last, startups have also started appearing in countries other than the US. Israel has them, Scandinavia has them, the UK has a few and even rich bits of the Middle East are starting to register. In a world where everybody can access the model, new distinctions become necessary for investors and analysts alike.
Today companies are as likely to be described using a timeline, for instance ‘seed’, ‘stealth’, ‘early-stage’ or simply by funding round, be that A, B or C. Reach a paper billion-dollar valuation and a startup becomes a ‘Unicorn’ regardless of whether it's one year old or ten. Combine more than one category and it becomes finely nuanced.
So it this the end of the road for startup as a noun rather than an adjective?
“A startup is no longer a startup when it becomes successful,” suggests Kirsten Connell, the recently appointed managing director of the UK’s only accelerator for security startups, Cyber London (CyLon), before going on to suggest that startups should always be under five years old. Any older and they need a good excuse.
She mentions UK cloud collaboration company Huddle, which in 2014 was shortlisted for for best international startup by Techcrunch despite being founded in 2006. It wasn’t alone either – the category winner Waze was of the same vintage. In sectors filling up with companies only a few months old, investors were buzzing around ‘startups’ that looked pretty long in the tooth.
It was as if Google had been founded in 1990 but won plaudits as a newcomer in 1998 when the world first noticed it.
“A company like Huddle doesn’t need that recognition. At the time there was a lot of conversation that Huddle was no longer a startup,” says Connell.
“A lot of companies want to keep their startup status because it comes with a lot of kudos. It’s become more of a marketing ploy. It’s a way of saying ‘we’re not a corporate’, ‘we’re not boring,’” she adds although in fairness this might be down to others rather than Huddle itself. If it looks like a startup and operates like one to hell with the fact it has 300 employees and a building that’s changed its colour scheme three times in a decade.
At CyLon, a programme with the ambition to create the first generation of security firms built from scratch in the UK, she favours financially-descriptive terms based on funding round or the type of investors.
One of CyLon’s most successful ‘graduates’ is messaging security firm SQR Systems, whose CEO Nithin Thomas offers thoughts from the entrepreneur’s perspective.
“These words tend to get over-used. I saw the same thing happening to the word entrepreneurship. It tends to go in cycles,” says Thomas. “You see the same thing happening with words like unicorns.”
Interestingly, SQR is a four-year old university spin-out with revenue and grown-up customers so his firm is a perfect example of a startup that might have reached the stage where they no longer want to be seen as such. The company was careful to locate itself inside CyLon's incubator as a mature company, offering itself in a mentoring role for the younger teams around it.
“In certain situations it’s definitely a hindrance such as with government-type companies. You say you are a startup that translates to high risk in their minds,” says Thomas. “We tend not to call ourselves a startup,” he admits.
But here’s an extraordinary thought; perhaps in a world where it is possible to be both old and new at the same time the word startup now confers a quality of maturity.
This might not fly in sectors such as e-commerce, or in countries where competition is fierce such as the US. But in the booming sector of early-stage security, maturity counts for something and startups can combine the best of both worlds. A security startup is a company that is old enough to have a real product with reference customers but not too old that they are discredited by the failures of yesterday's technology. Anything younger and it’s interesting but callow. Any older and suspicions set in that the product might be masking old ideas with clever marketing.
The idea of a startup - as against early-stage - has become, at least in security, a goldilocks zone, neither too hot nor too cold.
Newness and maturity were once so fixed and opposite in people’s minds but this is no longer always the case. ‘You don’t get fired for buying IBM’ went the famous saying and it might still be true for some. But increasingly, startups are more than risky novelties. After decades on the fringes, however one defines them startups have achieved a degree of trust and the status of business fixtures. Who would have thought.