Daily Archives: July 14, 2023

Just What Is a Start-Up?

Do you know? I bet you don’t! And based upon what he’s seeing in the market, even the doctor doesn’t know anymore! (While he knows what a start-up has traditionally been defined as, that doesn’t appear to be the definition anymore, but we’ll get to that.)

Investopedia defines a startup as a company in the first stages of operations.

TechTarget defines a startup as a newly formed business with particular momentum behind it based on perceived demand for its product or service.

Wikipedia defines a startup as a company undertaken by an entrepreneur to seek, develop, and validate a scalable business model … intend[ed] to grow large beyond the solo founder.

Forbes defines startups as a young company founded to develop a unique product or service, bring it to market and make it irresistible and irreplaceable for customers.

StartUps.com quotes Eric Ries and defines a startup as a human institution designed to create a new product or service under conditions of extreme uncertainty.

You get the point. A startup should be:

  • new
  • innovative (seek, develop and validate; unique product or service)
  • market demand focussed
  • growth focussed beyond the founder / founding team
  • awash in uncertainty

This should mean that a company should no longer be considered a startup when:

  • it’s no longer new (after some reasonable amount of time has passed since product launch)
  • the product has been out long enough to be replicated or surpassed by competition (who figured it out on their own without IP theft)
  • the market demand has evolved based upon the product capability
  • it’s grown beyond the founders (and stabilized)
  • the company has been operating with reasonable stability for a while

And while you might debate whether or not

  • a company is still new after 1, 3, or 5 years
  • a company is no longer innovative when it has been equalled or if it’s when the competitors have stabilized
  • the market demand has grown as a result of initial adoption or if a couple of extra years are required for the market capability to mature
  • the company is large enough when the team is double the size of the founding team or if it needs to be triple, quadruple, or based on industry averages
  • you need 2, 3 or 5 years of stability

the doctor is quite certain the majority of you would agree that a company is NOT a startup

  • if it has been in existence and live with its product for over 5 years
  • any semi-unique capabilities have long been equalled by companies that followed (where some of those followers may even have been acquired for their maturity)
  • the market demand has considerably grown and matured (possibly to the point that even related solutions were started, grew, and were acquired into mainstream suite players)
  • the company has surpassed 10-15 employees or quadrupled in size relative to its founding team, whichever is larger
  • if it has well over 5 years of stability

But yet, on the list of companies being considered for the Demo 2023 start-competition at DPW, you have a company that:

  • has been in business for 13 years with a beta product in testing the year it was formed
  • barely had any unique capabilities on launch (just had a much lower price point and easier UX and added some semi-unique capabilities as it went along, along with stronger back-end processing, but since then new startups have come along that equalled it and one was acquired)
  • the market demand has consistently grown and matured since before the company was founded to the point related solutions were acquired and integrated into suites
  • the company is almost 10X it’s first month size (and over 100 employees)
  • while it had years of stagnation from a growth perspective, it never shrank

WTH? This is simply ridiculous. They basically let a company check a box and call itself a startup without any validation whatsoever (presumably because that company knows its only chance of winning a competition or award is to call itself a startup). It’s sad, and it’s not useful. the doctor has already complained about analyst firms (associations, and conferences) inventing meaningless awards, but if you’re not going to have any requirements or quality control, even the awards and competitions that could be meaningful are now meaningless as well.

And the doctor has to rant about this because it’s not just DPW that are including mature small companies in their startup competitions and startup award categories, it’s the majority of the publications, conference, and analyst firms in the space. DPW is just the latest example the doctor has seen over the last few years (and the one that pushed him over the edge).

(There’s a reason that, at least when he was Lead Consulting Analyst at Spend Matters, the doctor argued for strict limits on length of existence, product availability, customer count, and market size in the Future 5. Without guidelines, requirements, and limits, the designation is meaningless.)

So while the doctor might be calling out DPW as allowing one of the most egregious mischaracterizations of “start-up” that he has seen in quite some time, they should not be singled out, and definitely should not be singularly judged, for this. It doesn’t take more than a little research across the other analysts firms, associations, and award-giving conferences and directories for one to discover DPW is not alone in using a very loose definition of start-up (which sometimes barely qualifies in the “small company” category). Some days it seems that the majority of outfits are allowing any company that wants to be a startup to call itself one as long as it is under some arbitrary revenue number or employee count, even if the company should not have been considered a startup for over five years.

This is a problem that plagues enterprise software, and one, as professionals, we need to demand be fixed. Words and classifications have meaning, and the minute an organization that should be verifying that the words and classifications are used correctly stops doing so and allows anything to be anything, those words and classifications no longer have meaning and any evaluations (or awards) based on those words and classification lose all meaning.

As with an illogical insistence on undefined “AI” or maps that mesh 6 different, barely related, subjective factors into a single dimensional score, these categorizations are unhelpful, and may even cause harm when a company is misclassified as a startup. Some organizations are so risk averse that they will not deal with any company that has wrongly been called a start-up, and others will choose that startup assuming it’s in early stages and going to get bigger and bigger over time (and they should contract with the winner before it gets big and its prices go up, assuming it will fill in the missing functionality that they want over time as more employees are added). But how big a company gets is not just a function of (more) time, it’s a function of what it offers, how much of the market can use what it offers, and how much the company can sell it for. Some companies with niche offerings will never reach an arbitrary revenue threshold, and some with ultra efficient operations will never reach an arbitrary employee threshold, which means neither of these metrics (which are not part of the definition of startup) are an acceptable measure.

And it’s time for us independent analysts and consultants to say enough is enough — Procurement may not be the island of misfit toys anymore, but that doesn’t mean it’s still not relegated to the basement with the IT Crowd in many companies. Procurement’s not going to get its due, and the CPO is not going to have a seat at the big table, until we collectively start treating it with the professionalism it deserves.