Classification of startups: ways to distinguish
So, with seclgroup.com we figured out what a startup means. Now it’s time for classification. What are the types of startups?
They are usually classified according to the characteristics of the promoted product and the target market segment. Depending on this, the following types are distinguished:
- Clones. These include start-ups created in different countries that completely copy successful foreign projects. For example, this is how social networks are cloned. Such an approach, as practice shows, is quite promising.
- Aggressive newbies. These are projects whose goal is to expel competitors and capture a certain market segment. The competitive advantage of such companies is only the offer of a lower price.
- Cat in a bag. Projects with innovative ideas. The development prospects and the future of these startups are very vague. The promotion of such ideas is a huge risk for the initiator. But if investors appear who believe in the prospects of the project, and the product is in demand as a result, the startup will make a huge profit. This is due to the novelty of the idea and the lack of competition.
Startups are also distinguished by the degree of innovation and manufacturability:
Innovative projects based on high technologies. They, if implemented, can bring a very high income. But the launch requires huge financial investments, so only large investments can help.
Traditional projects. It is not necessary to take an innovative idea as a basis in order to organize a successful business. There are enough examples of when successful startups were created based on simple ideas. They are easy to implement, so the creator has every chance to make a guaranteed profit.
Stages of development
Each startup project develops according to the following algorithm:
- Sowing. This extensive block includes the search for a business idea and ways to implement it. At this stage, the initiating team analyzes the market and, based on the data obtained, draws up a business plan. When the terms of reference are formulated, a product prototype is created and tested. At the same time, the group is studying the demand for the product and is looking for investors. If funding sources are not found, the project will die out. Most start-ups end at the first stage.
- Launch. This stage is possible if it is possible to attract investments. This is where the product is released to the market, where, in a competitive environment, it must prove its advantage. It is not easy to compete with analogs that have firmly taken their place in the market. Entering this stage is a big risk for creators. It will take professionalism, perseverance, ingenuity, and a business approach. In case of indifference on the part of the target segment, the project will fail.
- Growth. Projects that survived in the fight against competitors will be able to move to this stage. If there is a stable demand for a product, and it has managed to find its niche in the market, we can assume that the break-even point has been passed. From this point on, investors will already begin to receive a small profit.
- Extension. If the goals that the developers were guided by are achieved, they may not stop there. At this stage, product promotion enters new markets. Nothing threatens the already achieved position of the product. It is recognizable, and the demand for it is stable, so incomes increase.
- Exit. This stage is implemented when the project reaches its peak of development. The investors who financed the project are selling their stake. The sale will bring them high profits. For the sake of this, investments are made in start-ups. It is also possible that a share in the business is retained by the investor as a source of stable income.
The very concept of a start-up project involves an innovative approach. But still, novice businessmen often think about the choice: a traditional product, but with high competition, or a new product, a market segment for which they may have to create. Usually, startup developers choose the latter.
Today, the interest of entrepreneurs and investors in startups is steadily growing. Although companies with innovative products are not always successful. According to statistics, only 10% of innovative ideas develop adequately.
According to forecasts, the following niches will be in demand in the coming years:
- financial services;
- technologies for improving the environment;
- medical technologies;
- telecommunications and media;
- health projects;
- social network;
- consumption area.
Investing in startups
Investment is the main component of the viability of a project that is launched. Therefore, various investment platforms are being created. Startup developers find support on specialized platforms, forums, and in investment competitions.
How does startup funding work? It is worth saying that both parties are interested in the success of the enterprise – the creator and the investor. Everyone will profit if the idea is successfully implemented. The investor’s risk, however, is much higher. But the reward is commensurate with the risk. The financial share of the investor’s profit significantly exceeds the income of the creator of the idea.
The main interest of the project initiators is not only financial. The creator puts all his efforts into his project to see its implementation, and to get recognition. In some cases, a startup for a developer is a hobby, and its implementation will simply be a reward for efforts.
Investors look at the project differently. The main task for them is to increase their capital. When investing money, the investor accepts only two possible ways for him. The business develops, the value of its share increases significantly, respectively, it can be sold with great profit for oneself. Or the investor will keep a stake in the business to receive a stable passive income.
Both parties negotiate the division of profits in advance. It is natural that the share of the investor makes up a large part of the income from the project. He finances and risks his own funds. The share of the creator is usually up to 10 percent of the profits. If the project is going to be a huge success, this small percentage will provide him with a comfortable life.