“Life is either a daring adventure or nothing at all".  - Helen Keller

A start up could be defined as a new business, the end.… But it doesn’t end here, a start-up is much more complex than this definition. So what really is a start up? Let’s pick up those magnifying lenses.

Key features of a start-up.

Key features of a start-up that set it apart from regular businesses include the following:

A start up requires a lot of investment. Start-ups are capital intensive. It requires money spent on research into what works and what doesn’t, and also money spent on technology and other logistics. But investors are not worried about the money to be spent as they expect at least 10 x money back.

Improver or disrupter, what art thou? Another feature of a start-up is that a start-up either builds on existing market or disrupts the market by bringing something totally new and different. This distinction between a start-up being an improver or disrupter is very important as it determines the amount of investment needed for the start-up.

Limited revenue at the onset. Despite the large investment needed for a start-up, profit doesn’t start rolling in immediately. It may take some time to see some revenue. This is due to the fact that at this stage things are still being figured out.

Growth is key. A start-up does not remain at a particular stage, it keeps growing through various stages and phases to even evolving from being a start-up.

Scalability. You can’t say start-up without mentioning scalability. A start-up being scalable means increasing revenue or consumers with least cost. Take for example software start-ups for instance, an increase in downloads or users may not necessarily affect cost.

The curious case of the start-up founder.

Geez, the above sound so stressful! So why do people set up start-ups if they know they would require a lot of investment, they would need to improve or disrupt markets and there is going to be limited revenue at the onset?

Well, people do that because of passion. They have this one great idea that they feel passionate about and want to nurture it themselves.

Others do it because they feel that the experience would provide them with growth. Setting up your own start-up company helps you acquire new skills and knowledge you wouldn’t have otherwise have acquired in your usual day job such as bolstering your creativity. This is because it puts you in different roles. And new roles mean new responsibilities and experiences.

Believe it or not, some do it just for the sake of the adrenaline. They love the challenge.

Enough with the adrenaline junkies, it’s time to solve a mystery.

The Mystery of the Start-up and the Established Business.

Certainty vs. Uncertainty

Established businesses have a degree of certainty about their product, their target or market, business model, pricing amongst others whereas start-ups are still figuring out a sustainable model that works best.

Agile vs. Waterfall

Start-ups are still testing out hypothesis so it’s best for them to use agile, develop a minimum viable product and figure out what works and don’t work. Established businesses on the other hand know what works and can implement a long term plan so they are likely to use Waterfall instead of agile.

Accounting is different

As stated earlier start-ups at the onset are not making any profit as they test out different hypothesis as to what works and what doesn’t hence their accounting would be different from established business which is making profit.

If start-ups are not making any profit or have limited revenue then how do we know if a start-up business is viable or not?

The case of start up valuations.

You can have a valuation of a start-up pre and post funding round to determine viability. Some of the methods used in valuation of a start-up include the Berkus approach by venture capitalist Dave Berkus, the discounted cash flow which uses probable future revenues of the start-up to determine its value, the cost-to-duplicate which uses how much it would cost-to-duplicate the idea in another country to determine the soundness of the idea. The cost–to–duplicate could be deceptive as the regulatory climate of a particular country could affect the cost of setting up business and its later profitability.

The final valuation method to talk about comes after funding round. This is called the Book Value Method. This method determines the net value of the start-up by deducting the intangible assets from the tangible assets of the Start-up. There are other methods used which are not mentioned here but the particular circumstance and what is sought to be achieved by the valuation might determine which method or methods to use.

Our examination of the curious case of Start-ups leads us to our final mystery - the mystery of corns.

The Mystery of Corns - Unicorns. Decacorns. And Hectocorns.

As already established, Start-ups are not your average Joes.

With regular businesses, you need to start making profits early or the business would fold up but it is not so with start-ups. Start-ups sometimes involve years of building that life-changing product the world has yet to see. And hope that this journey towards global change or (world domination?) finally pays back not only in millions but billions (did someone say "like corns").

Here, then, are the three kinds of corns define how much a start-up is valued:

Unicorn: a start-up worth over 1 billion dollars.

Decacorn: a start-up worth over 10 billion dollars.

Hectocorn: a start-up worth over 100 billion dollars.

Now that you see the greens and how much can be harvested, are you ready for an adventure? 

Get planting with your ideas, curious founder!

- By Joycelyn Acquah | Author, Amicus Blog

Fresh perspectives for startups and established ventures.