When do you stop being a startup and become a company instead?

This question has stumped me for a long time. When do you stop calling a business startup and start referring to it as a company? Very few people would still refer to Facebook as a startup today. It definitely was one, some time ago, but what changed? Did the IPO qualify it for the adulthood status in business? This seems like a compelling argument, if not for the fact that there are a number of examples of companies that are still privately held but are definitely not referred to as startups.

I remember reading a viewpoint on this which basically linked it to revenue. It said something along the lines of:

If your startup has figured out a monetisation plan and it is working, your startup isn’t a startup any more

By this definition Buffer isn’t a startup anymore, with a monthly recurring revenue of 750K USD.

There are so many other viewpoints available out there. There’s an entire article by Quartz on this topic, with a focus on Indian startups. In it, Vijay Shekhar Sharma, founder of Paytm presented his thoughts on the topic:

A startup becomes a company when the founder doesn’t know what’s happening — so, when teams can take independent decisions without including the founding members.

— Vijay Shekhar Sharma, Founder, Paytm

This sounds about right, but I am still not very convinced. Teams can take decisions without including cofounder in a lot of cases. So is he talking about the founder not being involved in the key decisions? Ah, well, more questions.

Alex Wilhem of Techcrunch has another take on this topic:

If your company has, or is any of the following, you have to hang up your Startup Uniform, and realize that you are just another technology company either hunting for or actively avoiding an IPO:

  • $50 million revenue run rate (forward 12 months);
  • 100 or more employees;
  • Worth more than $500 million, on paper or otherwise.

This is a complex definition and while it may be true in general, there are enough cases that can not be handled by this definition. What if the company’s potential market itself isn’t $500 million? What if it’s a business like Instagram or Whatsapp with very few employees, no revenue, but valuation is more than $500 million? Again, more questions.

Recently at Razorpay, we hosted Lalit Mangal for an informal event we call “What’s up?”. Lalit is the co-founder of Commonfloor which got acquired by Quikr for $200mn supposedly. He spoke candidly on a plethora of topics related to startups, questions that are inevitably asked in every startup at some point of time. While talking about how founders should try to make themselves redundant, he dropped his viewpoint on this topic too:

If the founders can take a holiday for 30–40 days and the startup can survive that without any major issue, it’s not a startup anymore

— Lalit Mangal, co-founder, Commonfloor

Lalit Mangal, talking about the startup life, at the Razorpay office

This is a definition that I really like because I think it captures the essence very well. If the founders can take a vacation for such a long period without any evil befalling the startup, that means there are enough structures in place to ensure the smooth running of the company. This is quite in contrary to the startup spirit, where there are hardly any structures and the key decisions tend to be taken by the founders. Any structure that exists, exists to ensure that each employee can do his/her best and not for defining how everything should be done. Also, 30–40 days is a long enough period wherein one or two key decisions might have to be taken. If the the team can take these decisions without having to make a distress call to the founders on a vacation, it’s not a startup.

So why would you want to keep calling yourself a startup?

There are so many companies that just cannot be called a startup anymore, no matter which definition you personally prefer, and yet they prefer to call themselves one, at the very least internally. Of course, there are a multitude of reasons. Startup sounds sexy, company sounds boring. Startups have a spirit of hustling, companies relate to corporate-y feeling. Calling yourself a startup lets you get away with the mistakes, for startups are given a room for errors.

Personally speaking, I’d like to see Razorpay become a company, because that will mean we have succeeded in making something that’s bigger than the individuals in the team. It’s not just few driving the company but a well oiled system that knows how to work.

About Shashank Mehta:

Heading product for RazorpayX, building the future of business banking. Early bird (#7) at @Razorpay. Forever hoarse throat thanks to ManUtd.

Follow me on twitter. I don't tweet a lot though. Bummer, right?