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When is your start-up no longer a start-up?

A few days ago I received an email asking me if I had a “rule of thumb for determining when a start-up can no longer be considered a start-up”. The sender proposed a few potential answers but I thought this one might be a good one to put out there for feedback from readers. His suggestions were:

*Two consecutive  quarters of positive free cash flow?
*Drop pooled benefits company like Administaff for in-house benefits administration?
*Anything > C round, seeking to lever w/ mezz debt or file S-1?
*Name of company becomes a verb in our lexicon?
*Receive gov’t stimulus funding?
*Oprah uses your product?

For a long time I’ve asked entrepreneurs at what point their company no longer felt like it was a start-up. The answers were remarkably consistent, although I don’t think exactly answer the question in the way that was meant above. In any event, most founders tell me that around 30 employees is when their start-up companies start to feel like real businesses (or at least feel “different” – I think largely stemming from the fact that around 30 employees is the time when a CEO no longer really feels like the know all of the people that work for them). Of course depending on their funding and growth expectations this can happen at many points on a company’s growth curve and spending money (i.e., hiring employees” is not the mark of a business), so I feel that a better metric is probably the right one. Or more likely several better metrics.

Thoughts?

October 20th, 2010     Categories: Startups     Tags: ,
  • George Ortiz

    Also, I think a being classified as a startup includes some culture aspects. For instance, one point of separating a company from the startup label would be when that company isolates its pivots and starts to really hone in on its products, services, or identity. Paypal went through a ton of pivots within their first couple years and it wasn't until they pivoted from being a payment service for PDA's that they really found their identity and got grounded.

  • http://www.net-results.com Matt Filios

    Good thought provoking post, Seth. As someone who has been involved in multiple startups on a number of different levels, my feeling is that the startup moniker has little to do with time, funding, financials or relevance. It has to do with the original founder(s) of the company. If they are still involved in the leadership, strategy and direction of the company on a daily basis, that company to me is still a startup. Once the original founders have left or been replaced and someone else is running with their vision, it no longer becomes a startup. It doesn't matter if the company is ten years old, gone through 4 rounds of investment, etc.

    Maybe that is different than conventional thinking, but I have seen enough examples where once the founders leave, the concept and mentality of the startup goes with it.

  • Rick Thomas

    A startup becomes a business when all the necessary functions are in place for sustained operations. The risk of failure drops significantly. If a major risk factor crops up or the leaders decide to bet the company on new opportunity, then it becomes a startup again.

  • jacksinclair

    A board member once said, when we reported our first year of positive free cash flow, "Congratulations, you have a real company now". I always liked the simplicity in that statement. Although I probably stopped feeling like a startup when we knew we we could support ourselves from our income statement and did not HAVE to raise money again.

  • Matt H

    Stop worrying about it go make some money.

  • http://www.connectfu.com/ Jeff Yoak

    I think the difference is that startups are looking for a repeatable, scalable business model and you stop being a startup when you have one. This has all sorts of consequences when you make that jump. You stop having closer-type experts who investigate client needs, drive the product substantially and make things up as they go along and start having a VP of sales who herds collateral, a team of sales people and a pipeline. You stop having mad hackers cranking out brilliant things independently and start worrying about Q/A, scheduled releases, communication of feature sets, documentation, etc. You transition from a lot of informality that optimizes innovation but also allows mistakes to more process-driven functioning that ensures stable, if more mediocre, operations. Operations in general becomes an isolated concern. Technologically, unless you happen to be in a space where infrastructure is a key point of differentiation and already have it, you tend to pick up a group that is concerned with administration and operations as a focus instead of your developers handling admin as a side responsibility.

    Even if you don't notice some of those things, a sad indicator is that it tends to be one of your highest periods of staff turnover, because these transitions in ways of doing things often imply that some your most valuable people have skill sets and temperaments that don't serve well as the transition occurs. Tragically often, this can go straight to the top with C-level execs. In my view it is one the key responsibilities of executive management to make sure that this aspect is handled as well as possible in the transition, for all staff including themselves.

  • greg avery

    At the Denver Business Journal, we use a somewhat arbitrary but workable definition: you're no longer a startup 1 year after you unveil your first product/service or you generate revenue. It was defined that way during the frothiest part of the dot.com boom when the term "startup" was a badge of honor and a lot of doomed companies used it solely to keep the VC gravy flowing. Today, we try to avoid the term, preferring instead to say a company's "xx years old" and noting whether it's VC or angel funded or bootstrapping.

  • http://www.kelsusconsulting.com Jonathan Christensen

    I don't like the cash flow metric because I can think of an example of a company I worked for that is still in existence today, and still more or less pre-revenue but it is definitely not a start up anymore. It's been through multiple ceos, it has incorporated 'grownup' business processes, and it has been both above and below 30 employees. But it's defintely too old and set in it's ways to be considered a startup anymore. I think I would suggest that this particular company stopped being a startup when the initial 'launch' failed and the board fired the CEO and put in an industry vet to save their investments.

  • Ryan Hunter

    When you hire a receptionist

  • http://www.defragcon.com Eric Norlin

    When I was at Ping Identity in the early days, Andre (ceo) used to regularly call "Tuesday Afternoon Budget Meetings" – which was code for, "everyone stop working, we're going across the street to consume alcohol and I'm buying." That's a critical part of "startup culture" (no, not the ability to pivot; the ability to go drink beer mid-afternoon at a moment's notice ;-).

    That stopped at Series A — when we had things like a real office, employees, etc.

    Somewhere in there, we stopped being a "startup." ;-)

  • Andre

    NewsFlash Eric: Budget days are back at Ping Identity! (…and who knows, if we move back into the old Jabber building, they may well resume at the Keg.)

    I used to think if we hit $10M we somehow no longer qualified as startup. I've noticed recently that I can make people upset when I refer to Ping as a startup. As if I'm somehow discounting our accomplishments. But I don't view it that way. I think it's a state of mind. A mindset that says, 'we're always learning, we're always growing.' And I think of startup as a relative term. At $1M you strive to be a $10M, at $10M you strive to be a $100M company and so on, it never ends.

    You're absolutely right however in that keeping it real along the way is what's really important. But it's not the numbers or the venture funding which changes it (or at least it shouldn't). Done right, 'startup' is a state of mind and a culture.

    I hope to build a $1B startup. And God willing, I'll still be doing Budget days.

  • Andre

    NewsFlash Eric: Budget days are back at Ping Identity! (…and who knows, if we move back into the old Jabber building, they may well resume at the Keg.) nnI used to think if we hit $10M we somehow no longer qualified as startup. I’ve noticed recently that I can make people upset when I refer to Ping as a startup. As if I’m somehow discounting our accomplishments. But I don’t view it that way. I think it’s a state of mind. A mindset that says, ‘we’re always learning, we’re always growing.’ And I think of startup as a relative term. At $1M you strive to be a $10M, at $10M you strive to be a $100M company and so on, it never ends. nnYou’re absolutely right however in that keeping it real along the way is what’s really important. But it’s not the numbers or the venture funding which changes it (or at least it shouldn’t). Done right, ‘startup’ is a state of mind and a culture. nnI hope to build a $1B startup. And God willing, I’ll still be doing Budget days.

  • http://twitter.com/scrollinondubs Sean Tierney

    Best answer to this question I heard originally from Michael Cannon-Brookes of Atlassian and it’s “when you have to start locking the supply cabinet.”

  • Brad Chase

    Consecutive quarters of growth, money to outsource/hire all relevant tasks (if you are bootstrapped), competitors start noticing you….those are some indicators of growth to me.

  • Anonymous

    I think its when you’ve achieved four quarters of positive cash flow AND know exactly how you’re going to do the same for the next four quarters.nnEverything else is just size and culture. You can be a kick ass five person company forever, you can be a 100 person start-up. You can be a 100 person company that runs like a big fraternity house (done that complete with company beach house), you can be a five person company where not wearing a Brooks Brother’s Suit is considered unacceptable and you have 500 pages of procedures…seen that.