Types of Startups

The term startup refers to a company in the first stages of operations. Let's dive deep into it.

Types of Startups

Types of Startups

Now that we know what a startup is and the common terms related to startups lets get to know more about startup and the types of startups.

The reality is that while we have only one word for "startup," there are six varieties:

1.   Lifestyle Startup

2.   Small Business Startup

3.   Scalable Startup

4.   Buyable Startup

5.   Social Startup

6.   Offshoot Startup

The founders who start these are all "entrepreneurs." But there are significant differences between the people, funding and strategies involved. Not understanding those differences can screw up your chance of success.

1. Lifestyle Startup:

For hobby lovers that work on their real passion may be listed under this type of startups. They are usually people who want to satisfy their needs by being in activities that are entirely on what they like. For example, music lovers who decide to open a music school to spend more time around this environment

A lifestyle business (also referred to as a lifestyle venture) is a business set up and run by its founders primarily with the aim of sustaining a particular level of income and no more; or to provide a foundation from which to enjoy a particular lifestyle.

2. Small Business Startup: Basically it is Self-starter, Indie companies with small teams

Using the criteria above, the average startup has more in common with your average mom and pop shop than it does with Google or Apple.

And yes, the distinction between a startup and a small business is kind of fuzzy. Perhaps that’s why so many people use the terms interchangeably.

Most startups have some sort of “bigger” endgame of being bought out or receiving an injection of cash. 

Small business startups are different. From solo businesses and partnerships to small teams, these startups are happy staying startups as they sell their products and services.

And while they’re interested in growth, they grow at their own pace. Such startups are often bootstrapped or self-funded, meaning that there’s less pressure to scale ASAP or be beholden to the immediate needs of investors.

3. Buyable startups: Are businesses built to be bought out

The concept here: small teams build a business from scratch and sell it to a bigger player in their industry.

These types of startups are usually associated with software and tech. Chances are you’ve seen headlines about giants like Amazon or Uber buying out smaller startups. Mergers and acquisitions like this happen all the time. Getting bought out seems like a pretty sweet deal, right? 

However, building something worth being acquired for millions (or billions) is easier said than done. 

Consider first that competition is absolutely fierce in any given software industry. There are thousands of startups to contend with in B2B SaaS alone.

Keep in mind that startups don’t necessarily need to be profitable to be bought out(and many aren’t). This represents a sizable risk for investors, but an even larger risk for business owners stuck trying to sell off a company that’s bleeding money. Look no further than the unfortunate fate of We Work as evidence of how messy this process can be.

That said, there are plenty of independent app-makers and small teams that spend a few years on a business (or even a side hustle) that gets sold to a larger company. The takeaway? Building a buyable business doesn’t necessarily have to mean “go big or go home.”

4. Scalable startups: Companies that seek capital (or scale themselves)

The common thread between all types of startups is the need to scale.

This rings true whether you’re a business with dozens of employees or a duo working out of your parents’ garage.

But some startups are easier to scale than others. Most consumer and business apps are examples of scalable startups: once they’ve built buzz and a user-base, it becomes easier to acquire new customers. It’s a sort of snowball effect.

Scalable startups do this by raising capital from outside investors (think: angel investors, venture capitalists, business partners, friends, family). With newfound cash, they can support growth initiatives to score more customers and eventually grab the attention of folks willing to buy them out.

There are startups, however, that can continuously scale themselves without a traditional exit strategy. Convert Kit is a great example of this. The company has received funding in the past, but recently crossed $15 million ARR and intends to maintain its sort of “startup” status: Also, companies that scale and seek capital don’t necessarily have to resort to millionaires or billionaires to make it happen. In fact, there are plenty of startups such as Oculus that actually managed to grow via crowdfunding from eager, prospective customers.

5. Offshoot startups: Companies that branch off from bigger corporations

Not all types of startups are built from the ground up.

An offshoot startup is fairly self-explanatory. Simply put, they are startups that branch off from larger parent companies to become their own entities.

For example, an offshoot business might be established in an effort for a bigger company to enter a new market or disrupt a smaller competitor. Because these startups act independently of their parent companies, they have freedom to do business and experiment without drawing as much attention or scrutiny.

As highlighted by Investopedia, a company like Sidewalk Labs (an offshoot of Google’s parent company Alphabet) is a good example of such a subsidiary. 

6. Social startups: Non profits and charitable companies

Startups are sometimes stereotyped as being growth-obsessed and money-hungry.

That said, some startups are specifically designed to do good. Social startups, which include charities and nonprofits, scale for the sake of philanthropy. They operate similarly to any other startup, but do so with the help of grants and donors. 

A shining example of a social startup isCode.org, an organization that’s managed to raise nearly $60 million (from the likes of Google and Facebook) to help give students opportunities in the field of computer science.