At what point does your business lose the startup label? Does it happen during a moment of sudden realization that your company has outgrown its first space? Or is it the day you no longer rely on venture capital to keep the lights on?
At JumpStart, we have a less abstract, more concrete answer to this question. A startup enters scaleup territory when it meets all of the following criteria:
- Three or more years old
- Employs between 10 and 100 people
- Earns more than $2 million in revenue
- Cash flow positive (or close to it)
But to fully understand the concept of a scaleup, we must first understand what a startup is—and what it is not.
What Makes A Startup?
First, it’s important to understand that the term “startup” is not interchangeable with “new company,” nor is a startup a company with an already established, easily replicable business model. Startups work to solve problems with non-obvious solutions—typically attempting to improve an existing solution or trying something that has not yet been ventured.
For this reason, local businesses (florists, auto shops, restaurants, etc.) are not typically classified as startups. Startups tend to forgo the stability these types of businesses offer in exchange for the potential of tremendous growth and profit.
As an entrepreneur, the goal is not to remain a startup indefinitely. Instead, the goal is to “scale” and become a profitable company. To do this requires a certain state of mind. Startup entrepreneurs are focused on moving fast and innovating in real-time as they work toward finding the perfect product/market fit. To reach this peak, entrepreneurs take big risks while working through countless iterations of their product or service.
This process continues until the startup has either failed, or realized a scalable, stable and repeatable business model. Once that happens, they have essentially become a scaleup.
What Makes A Scaleup?
As a company becomes a more well-oiled machine, the startup label begins to peel away. Goals will shift, and inevitably, new challenges lie ahead. In order to continue growing quickly and sustainably, scaleups must confirm new market opportunities, scale marketing and sales activities, drive revenue in these new markets, secure next rounds or new types of growth capital and find critical team leaders and team members.
It’s a tall order, but thankfully scaleups are less fragile than startups because most have revenue and employees to work with. Still, processes and strategy must evolve along with the business and existing roles are likely to change as teams expand and more time is spent on efficiency and perfecting what is working well as opposed to rapid pivots.
The road from startup to scaleup status can be long, winding and full of peril. In fact, a Startup Genome study reports that 74% of high-growth internet startups fail as a result of premature scaling.
Successful scaling, takes solid fundamentals. A little extra help doesn’t hurt either.
To read more about scaleups, check out 3 Reasons “Scaleup” Businesses Are Just As Important As Startups by JumpStart President, Cathy Belk.