When it comes to startups, there’s never one size fits all. While all disruptive high-growth businesses can be termed startups, it’s still a heterogeneous group with subtypes characterised by the industry served, market disrupted, funding raised, motive, and valuation.
Hence, while we have only one word for startup, there are different versions of this entity:
Based On The Market
According to Steve Blank, there are four types of startups depending upon the market type they plan to operate.
Existing Market Startup
This startup targets an existing well-defined market that already exists, has a demand, and is looking for a different solution that may disrupt such a market’s existing functioning. Take SpaceX, for example. The space exploration market existed but was largely untapped before SpaceX disrupted the functioning of the market.
In an existing market, consumers’ needs and wants are explicitly known, and the competitors have their positioning set in the minds of the customers.
New Market Startup
This startup finds a repressed demand and builds an offering to solve it, developing a new market in the process. A new market means that the startup enabled a large number of people to do something they were unable to do before it came along.
There are no direct competitors in such a market, and it’s the startup that makes the consumers realise that they have a repressed demand.
This was the case with Uber. The company developed an offering based on a repressed demand and made customers realise that they actually had a problem.
Resegmented Market Startup
Such startups choose a large enough market segment and further segment it into segments that can be explicitly targeted, with a more focused offering. For example, it can segment the market and target a group that prefer using an inferior product in terms of features but “good enough” to solve the problem or a group that wants a more focused solution to their specific problem rather than an offering solving just the umbrella problem.
For example, a company releasing a virtual video-classes platform just for schools to compete with Zoom is a resegmented market startup.
Clone Market Startup
Some startups exist in one country but not in others. And when another startup clones the former’s business model in a different country, it’s called a clone market startup.
For example, Uber started in the USA, but Ola copied its concept in India and disrupted the Indian market before Uber did.
Based On Funding
Technically, there are only two types of startups based on whether they have raised funding or not. However, such startups can be further categorised into subtypes.
A bootstrapped startup is a high-growth disruptive business that has never raised funding from an outside investor. All of the expenses are either met by funding provided by internal stakeholders or the revenue generated.
Unfunded startups are further categorised into:
- Self-funded: A self-funded startup is operated through an influx of investment by the founders who take care of the startup expenses using personal finance.
- Revenue-funded: Revenue funded startups generate enough revenue to pay off expenses and fulfil the startup’s growth requirements.
Based On Motivation
Most of the startups are driven by the idea of disruption, high growth, and large profits. However, some others have different motivation and are categorised into three different types. These are:
A social startup is a high-growth disruptive business dedicated to solving social, cultural, or environmental issues. Tesla is one example of a social startup. Even though the company is a for-profit company, it solves a problem of fossil fuel exploitation that benefits society at large.
A nonprofit startup is a high-growth disruptive business with a sole motive to serve society and not maximise profits. Unlike social startups, a nonprofit startup doesn’t have a focus on profit maximisation.
A for-profit startup is a revenue-focused business with a motive to maximise its profits. It cares less about social issues and more about how to increase its revenue and valuation.
Based On valuation
Startup valuation is a difficult topic to understand. These businesses are valued according to several factors like product validation, current metrics, future projections, etc.
However, they are also categorised into two types based on their valuation.
- Unicorn: A unicorn is a startup company founded after 2003, that has a current valuation of more than $ 1 billion.
- Decacorns: A decacorn is a startup company that has a current valuation of over $ 10 billion.
Go On, Tell Us What You Think!
Did we miss something? Come on! Tell us what you think about our article on types of startups in the comments section.