What is a startup and how to create one

Do you have an idea that will make people's lives better or even change the world? A startup will help implement it. We will tell you what it is, how it differs from a regular business, and where to look for funding for your project.

What is a startup?

A startup is a commercial project based on a new business idea. Startup was first mentioned in Forbes magazine in 1976: this was the name of companies that started working, but did not reach a stable income.

A startup is testing a new business model. The main task is to find out whether it will be working, that is, whether it will bring money or not. Statistics show that one out of ten business ideas becomes successful. A successful startup will not only generate a lot of revenue, but it can also change the market.

How they differ from other types of business

The main difference between startups is that they test the effectiveness and viability of new business ideas, while traditional businesses use proven commercial models.

For example, a dog walking app, a flower shop with souvenirs, or a coffee shop that offers coffee to go are no longer startups, because these business models are stable, tried, and generate income.

But the Shard service, which provides reliability in cryptocurrency transactions, and Medical Visual Systems, which creates smart operating rooms, entered the top 10 ranking of the most promising startups in 2023.

In addition, startups differ in that:

• financed by investors;
• grow rapidly (growth dynamics is an indicator of the viability of a startup) or fail quickly;
• easier to adapt to market changes, as they constantly monitor trends and the development of competitors;
• carry high financial risks if the startup does not take off.

What types of startups are there

Startups are classified according to how they build business processes.

Social startup: solves a social problem, for example, helps the homeless with work or selects blood donors. Such startups can count on financial support from the state or charitable foundations.

Startup in small business: creates services or provides services in a small market. For example, it sells used cars through an auction or supplies smart ready-to-eat vending machines that determine what the customer has taken and deduct money from the card. Such startups can be successful without investors, due to regular customers.

Replika is a trainable artificial intelligence that adopts the user's habits and mannerisms in the process of communication and creates a virtual friend

Subsidiary startup: create large companies to develop new services or services. For example, the aggregator of discounts and special offers Edadil was developed in Yandex. An important condition for the growth of such startups is the availability of resources of the parent company and at the same time independence from it.

Startup for sale: it grows rapidly, so it is profitable to sell it. For example, the My Device service, which rented electric scooters, game consoles, home exercise equipment, was bought by a fund from VTB Capital Investments.

Scalable startup: works with services or services that can scale well if they receive large investments. For example, Vision Labs, thanks to which Muscovites pay in the metro using Face Pay, does business in 38 countries.

What are the stages in the development of a startup?

1. Pre-seed, or pre-seed stage: the developers of a product or service understand what and for whom they want to create, formulate a business idea, for example, develop a new product or simplify an existing one.
2. Seed, or the seed stage: developers monitor the market, competitors, form a business strategy and start looking for investors.
3. Prototype: create an MVP — a minimum viable version of the product to evaluate the future product and demonstrate it to investors.
4. Alpha version: the prototype is tested internally to find and eliminate flaws.
5. Closed beta: the finished product is presented to a small group of users and feedback is collected to improve the customer experience.
6. Open beta version: the startup's product is launched for the entire audience, invested in marketing, scaled and determined the further strategy for the development of the startup: a traditional business model or sale.

Who finances startups and how

You can find finance for a startup in different ways, in addition to bank loans.

Bootstrapping (from the English to do something on your own): to invest your money in a project without attracting investors.

FFF Investors (Friends, Family, Fools): Enlist the financial support of friends, family, or investors who are willing to risk money.

Crowdfunding platforms: these are Internet platforms where startups can place their project and find investors. They will receive in return a part of the future profit, products or return the invested amount. Russian crowdfunding platforms: Planeta, Boomstarter, Alfa-Potok, Kroogi, StartTrack.

Business angels: these are entrepreneurs who are ready not only to invest finances, but also to advise, to be a mentor in a startup in order to increase its value. If successful, the business angel will sell his share in the project and thereby earn. Russian business angels: Igor Matsanyuk, Alexey Karlov, Konstantin Sinyushin and others.

Business incubators: these are organizations that support startups at all stages of development - from the idea and prototype to the finished product. Business incubators help to attract funding, so they do not claim a share in future profits.

Grant competitions: these are programs of financial support for startups offered by government agencies: ministries, scientific foundations, research centers and universities. For example, the Innovation Promotion Fund, which finances projects of young scientists and small businesses.

How to interest investors

The investor will not invest in the project for the sake of charity: he will be convinced by the prospect of making a profit. If you present only an idea, there is a high probability that there will be no funding.

What to prepare for the presentation to investors:

1. MVP tested on a small group of users;
2. a business plan with a financial model that will show how much the project will earn;
3. a pitch presentation, from which it will be clear what benefits the product will bring, what the finances will be spent on, and what should happen in the end.

Where to get startup ideas

Startup ideas are born from the needs and challenges that company founders face every day. For example, MIT and Harvard graduate Salman Khan helped his cousin study mathematics, as a result, the international educational platform Khan Academy appeared, which contains more than 8,000 educational videos in various subjects.

In what areas can you find an idea to create a startup:

Training: development of educational applications and gamification of learning.

Food: development of infrastructure for the industry, including the delivery of ready-made food and groceries.

Health: development of personalized medicine applications that help identify predisposition to diseases or assess the impact of lifestyle on the development of pathologies.

Communication: Creating communities where users manage and distribute content.

Artificial Intelligence: Creating smart devices, remote assistants, and chatbots.