Startup vs Scale-up vs Unicorn. What do they mean?
The term "startup" may be familiar to most people, even those who don't have a firm grasp on what it means. However, other words to describe innovative, disruptive business models have emerged that may be less familiar to people both within and outside of the business or tech world. In addition to startups, scale-ups and unicorns are also important.
Early-stage companies could fall under the umbrella of any one of these options, but what's the difference between them? As a startup grows, it could become a scale-up or unicorn if it's successful.
What Is a Startup?
Startups are new companies but not all newly-founded companies are startups. So what exactly is a startup and what sets it apart from other new businesses? Startup is a term for companies that are innovative or are using new technologies. Instead of following what has come before them, they have to develop their own processes and business model. Startups aren't meant to stay startups forever. Eventually, they should find stability and growth.
What's a Scale-up?
As a startup reaches the point where it has found its business model and has grown, it can become a scale-up. A scale-up has changed its scale and is starting to take off in relation to its growth and potential. Only very few startups make it to the scale-up stage, with only around 1 in 200 businesses getting to this point.
There are some common criteria used to assess whether a startup has become a scale-up. The OECD definition of a scale-up includes:
An average annual growth in employment or revenue of at least 10% over three years
At least 10 employees on permanent contracts at the beginning of their growth
Certain revenue amounts may be used to define a startup too. Between $1 million and $3 million in revenue is the standard criteria. Scale-ups might also be expected to have raised at least $1 million.
When Is a Business a Unicorn?
Scale-ups are startups that have begun to achieve growth, but how does a unicorn differ? Unicorn is a term used to refer to unlisted companies that are valued at over $1 billion. As the name suggests, they are very rare. The term was originally coined in 2013 by Aileen Lee to refer to the 0.1% of companies with a valuation of over $1 billion that venture capitalists invest in.
Key Differences Between Startup, Scale-up, and Unicorn
A startup has the potential to become a scale-up and perhaps even a unicorn. However, the difference between them isn't necessarily just how much growth they have experienced. Unicorn companies are typically in certain spaces, usually aiming for large and homogeneous target markets and selling accessible but highly desirable products that are used frequently. For example, mobile apps and social media platforms make up many companies that have reached the unicorn stage. Some of the key factors in differentiating between startups, scale-ups, and unicorns include leadership maturity, scalability, and market timing.
Startups, scale-ups, and unicorns all describe innovative and disruptive new companies. However, only very few startups become scale-ups and even fewer are able to achieve unicorn status.
