What is a tech startup?

In the fast-paced world of technology and entrepreneurship, the term "startup" gets thrown around frequently, but when questioned what a tech startup is you might not actually know. Often, we are more likely to identify with the industry we work in, rather than realising we’re building a tech product, so what exactly is a tech startup then, and how does it differ from a traditional small business?

In this post, we'll explore the essence of a tech startup, its characteristics, and the mindset that drives it forward, and help you figure out whether you are part of a tech startup or not.

Tech startup 101

At its core, a tech startup is an early-stage digital business aiming to disrupt the status quo through the development of a software product. Think about Airbnb or Skyscanner for a second: they started as tools built to solve a problem and look at them now. You probably can’t remember a time without them, and have used them at least once before.

They weren’t always global companies though; Skyscanner was started by three friends in Edinburgh and Airbnb by two unemployed art school graduates in San Francisco.

A tech startup can grow from idea to product to scaling and beyond. Skyscanner and Airbnb succeeded because they found a solution to a problem and did things differently, introducing novel solutions, and utilising existing or emerging technologies in innovative ways. While this may sound straightforward, the journey of a tech startup can be anything but ordinary.

Eric Ries’ Definition: Uncertainty as a startup hallmark

Renowned author Eric Ries, in his book "The Lean Startup," offers a definition that perfectly captures the essence of a tech startup: "A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty." This notion of "extreme uncertainty" is what truly sets startups apart.

Let's break down what this uncertainty means in the context of a tech startup:

• Market Existence: Unlike established businesses, startups often enter markets that may not yet exist. They must answer questions like, "Is there a demand for this product, or can we create a new market?"
• Technical Feasibility: Startups often deal with unproven ideas or uncharted technological territory. They must determine if their product is technically feasible.
• Customer Base: Identifying who will buy the product and why is a major challenge. Startups must create a compelling value proposition to attract customers.
• Competitive Edge: Startups face the uphill battle of convincing customers that their product is superior to existing alternatives.
• Cost Efficiency: Ensuring that the product can be created and distributed cost-effectively is crucial for long-term sustainability.
• Financial Viability: Startups must constantly strive to generate enough sales to cover their costs, a task laden with uncertainty.
• Ethical and Legal Considerations: Dealing with the ethical and legal aspects of their offerings adds another layer of complexity.
• Existential Question: Finally, startups must grapple with the fundamental question of whether their product should even exist in the first place.

These uncertainties - according to Ries - are the hallmarks of a tech startup's journey, setting it apart from traditional small businesses.

Further Characteristics of a Tech Startup

While Eric Ries' definition highlights the extreme uncertainty that defines startups, several other characteristics further distinguish them:

• Desired Influence on the Market: Startups often aim to disrupt and reshape markets rather than conform to existing norms.
• Ambitions for Growth and Impact: They aspire to grow rapidly and make a significant impact on their industries.
• Growth Mechanics and Techniques: Startups employ innovative growth strategies and leverage technology to scale quickly.
• Role of Technology: Technology is at the core of a tech startup's operations, enabling them to deliver unique solutions.
• Funding: Startups often rely on venture capital, angel investors, or crowdfunding to fuel their growth.
• Speed: A lack of existing baggage from processes, clients, teams, etc. means you can work quickly, pivot and adapt, and do things your competitors just can’t.

In essence, a tech startup is more than just a new business venture; it embodies a spirit of innovation, resilience, and the pursuit of the unknown.

Agents of change

Tech startups are not merely businesses; they are agents of change, pioneers of the uncertain, and visionaries of the future. While the definition of a startup may remain somewhat fuzzy, the mindset that drives them forward is crystal clear—a relentless pursuit of innovation and a willingness to embrace the challenges that come with it. These are the qualities that make tech startups a force to be reckoned with in the ever-evolving tech landscape.

In the end, whether you're an aspiring entrepreneur or simply curious about the world of tech startups, understanding their essence can provide valuable insights into the exciting, dynamic, and sometimes unpredictable world of innovation and entrepreneurship. To explore the world of startups further, apply for Techscaler membership and join our growing startup community.