When does a startup grow up?
Posted On January 3, 2017 by Geeta Priya filed under Enterprise
Oxford dictionary defines startup as “A newly established business”. There is no clear definition of what it means in terms of timelines. A business can gather enough revenue, manpower and market share in three years and not stay ‘new’ anymore. On the other hand, a business may continue to run small-scale operations with limited staff for more than 10 years and might still get recognized as a startup. So when does a company actually seize to be a startup?
In April 2015, to push forward the ‘startup India’ policy, the Indian Ministry of Commerce and Industry released a notification to define ‘startups’. According to it, one of the criteria for a registered company to be deemed as startup is that it should not be older than 5 years from its date of incorporation. So officially an Indian company is not a startup anymore after 5 years. But does that mean it would have reached the levels of maturity that are expected from large established organizations? Many a times 5 years a too short a period for an innovative idea to start reaping benefits and reach a financial level where a company can be called as ‘big’.
Instead of wholly concentrating on the profit-loss accounts, defining ‘maturity’ in operations in a more granular scale might lead us to a better definition of attributes that identify the growing up process of a startup. In today’s world of venture capital driven startups that go bust after initial boom, it is all the more relevant that as a company grows financially, it also matures wisely to sustain that growth in future.
So let’s look at five ‘maturity indicators’ of the growing up process.
- ‘Don’t get sued’
One clear indicator of a grown up entity is when it starts worrying about lawsuits. It means they have created something of value which is worth protecting. A company can get sued by employees, vendors, competitors or even by its own customers.
A grown up company would implement measures to protect itself from such eventualities. It would have proper HR processes in place for employees, established guidelines and monitoring of use of copyrights and patents, standards for all contracts whether with vendors or with customers.
2. ‘Process over personality’
Second indicator that a startup has matured is when it is less driven by personalities and more by processes. A technology company is more susceptible to following a single lead and be influenced by a dominant personality during early stages. As it matures, it starts decentralizing the decision making processes. This happens either by a top-down approach where higher management decides to force structures and processes or by a bottom-up approach where technology itself is used to drive this change. The technology driven approach is basically an approach where tools are introduced at various levels during operations. This is generally a less turbulent, easily accepted approach.
3. ‘Same market, more products’
Typically (and again, this is more true in technology field) a single concept or idea, however disruptive it is, cannot produce high financial benefits on a long run. A grown up company eventually figures out ways to sell more than one products to the market that it has already acquired. A well-funded and supported startup might even start multiple products for completely different markets, but that is rare in technology companies.
4. ‘Budgeting and forecasting'
A sure sign of maturity in an organization is when you start hearing these words in the corridors - budgeting and forecasting. In the early stages of a startup, either these words mean nothing to the management or they mean ‘bureaucracy’. But without proper financial discipline a company cannot reach higher levels of success.
5. ‘Here come the pool tables’
When the HR managers start thinking about pool tables in office or ‘team-bonding’ events, you can be rest assured that the company has seized being a cool, fun place that it was during its startup days and has become an established organization now. A startup that manages this transition well and is able to attract and retain talent is the one that matures faster.