Startup – what is it and how to start one?

In an era of innovation and a rapid pace of change, startups are the driving force of the global economy. Young companies, full of passion and creativity, are shaping the future with breakthroughs.

From this article you will learn:

• What is a startup?
• What are the methods of financing startups?
• How to start a startup?
• What are the risks for startups?
• What can be gained by setting up a startup?
• What are some examples of successful startups?

Although most startups start with limited funding, many are technology-based, which allows them to scale quickly. Key characteristics of a start-up include:

• Innovation – startups often introduce a new solution or unique approach to an existing problem.
• Scalability – solutions are often designed to grow quickly and adapt to different markets or customer groups.
• Risk – many startups are not successful. Due to the uncertainty of the future, investing in startups involves a high level of risk.
• Early stage of development – although there is no strict definition of the age of a startup, many startups are companies that are just starting out.
• Variability – processes, products and strategies in startups are often in a phase of experimentation and adaptation to changing market conditions.

A startup is a young company with an innovative character, aiming for rapid growth and solving specific market problems.

Definition of a startup

It is worth mentioning that many startups seek external funding, such as investment from business angels, venture capital or through crowdfunding, to accelerate growth and market expansion.

Each source of funding has its own advantages and disadvantages, and the best source depends on the specifics of the startup, the stage of development, the industry and the needs of the founders:

• Many entrepreneurs start their business using their own savings. This way of financing avoids external debt or investor participation, but also carries more personal risk.
• Some entrepreneurs turn to family and friends for financial support. While this form of financing may be less formal, it carries the risk of strained personal relationships if the business fails.
• Business angels are individuals who invest their own money in young companies in exchange for shares or debt. They often provide not only capital, but also experience and business contacts.
• Venture Capital are professional investment firms that manage raised capital and invest in startups in exchange for shares.
• Crowdfunding on platforms such as Kickstarter or Indiegogo allows startups to raise money from individual donors. In return for their support, donors can receive products, services or other benefits.
• Bank loans and credit are a more traditional source of funding, but are more commonly used by companies with more predictable revenues.
• There are many grants, competitions and programmes offering funding to startups, especially in the area of technology or innovation. Such funding often does not require a return or stake in the company.
• Incubators and accelerators are organisations that offer young companies financial support, resources, mentoring and co-working space in exchange for a stake in the company.
• Strategic investors, such as large corporations, can invest in startups that complement their own business strategies.

Most important are flexibility, the ability to learn and the willingness to adapt to challenges. The general path of setting up a startup is as follows:

Idea, market research and team building

Every successful company starts with a spark – an idea. However, it must be fresh and different from what is already available on the market, but above all it should solve a specific problem or meet a specific need. Nevertheless, even the best idea needs verification, which is related to market analysis – it is the key to knowing your potential customers, their needs and determining whether your product will find a place in the existing ecosystem.

The success of a startup largely depends on the people behind it. Your team should not only share your vision, but more importantly bring their unique skills and experience. The selection of partners or initial employees is important, as they are the ones who will help turn your vision into a working business.

Concept development, prototype and MVP

Creating a startup requires a thorough strategy. A key step is to develop a business plan that serves as a guidepost for the company. This should include a well thought-out business model, identifying sources of revenue and costs. Equally important is the marketing strategy – this defines how to reach customers and stand out from the competition.

Financial projections that show potential profitability are also important. In addition to this, it is good to test your concepts in reality. Creating a product prototype, or MVP, and gathering feedback from your first users provides valuable information that shapes the further development of your startup. Based on this, you can release a Minimum Viable Product – an initial version of your product that offers the minimum necessary number of features to interest potential customers and test their preferences, which is a key element of the lean startup method.

Registering the company and raising finance

When setting up a startup in Poland, it is worth considering the appropriate legal form, mainly because of the funding aspect. The most commonly chosen form is capital companies, including a limited liability company and a joint-stock company. As of July 2021, a simple joint-stock company (PSA) is also available, which is expected to make it easier for startups to raise capital while offering greater organisational flexibility and lower formal costs compared to traditional capital companies.

Next, it is necessary to complete all registration formalities, which involves the establishment of the articles of association, registration with the relevant authorities and obtaining a Tax Identification Number. Once the legal structure is ready, the source of funding becomes crucial. Depending on their needs, startups can raise capital from business angels, venture capital firms, through crowdfunding platforms or using their own savings.

Product development, marketing and sales

Initial feedback from users provides invaluable information on the functionality, usability and potential shortcomings of the product. Combined with available funding, they allow you to adapt and improve your offering.

Continuous improvement is the key to creating a product that solves users’ problems, but even the best product needs visibility, which involves developing a marketing strategy. It defines the objectives, target audience and communication channels and should be consistent, measurable and modified based on the results obtained.

Iteration and development

When your product gains recognition in the market, many new opportunities arise. At this point, it is worth considering expansion – extending your product with new functionalities, expanding your market by entering new geographical territories or growing your team to meet new challenges.

In order to nurture the growth of a startup, it is important to constantly analyse performance, gather feedback and observe market trends. When planning for the future, it is worth valuing of a startup and considering different growth scenarios, such as mergers, acquisitions or IPOs – a long-term vision not only shapes the operating strategy, but also motivates the team to strive for greater achievements.

One of the biggest is market risk – you may find that an idea that initially seems groundbreaking does not find the right audience or is mispriced. Another is competition, because even if a startup enters the market with a unique product, there is a risk that larger, more established companies will start offering similar solutions using their resources and scale. Related to this is operational risk, such as lack of experience, resources or proper management.

Funding is another area of risk. Startups are often dependent on external funding, and if they are unable to attract investors or if market conditions deteriorate, they may face financial difficulties. As great a threat as an opportunity for startups are people – internal conflicts, the departure of key employees or recruitment difficulties can pose a serious threat to a young company.

Also, the lack of extensive structures and hierarchies means that startups can adapt quickly to changing market conditions and respond to customer feedback. Many startups put the customer’s needs first, creating products or services that actually solve their problems.

Startups often offer a unique work culture, promoting creativity, self-reliance and continuous learning. For many employees, work is an opportunity to develop their own competencies. There is a culture of collaboration and experience sharing in the start-up ecosystem, which allows valuable business relationships to be established. Although startups carry the risk of failure, those that succeed can grow at an express pace, bringing significant benefits to both founders and investors.

Here are some well-known examples:

• Airbnb – initially, Brian Chesky and Joe Gebbia rented out inflatable mattresses in their San Francisco flat to earn rent. Now Airbnb is a global accommodation booking platform that is revolutionising the travel market.
• Uber – founded by Garrett Camp and Travis Kalanick, Uber has changed the way people get around cities by offering an alternative to traditional taxis.
• Dropbox – Drew Houston created Dropbox to solve the problem of transferring files between different computers. Today it is one of the most popular cloud storage services.
• Slack – was initially an internal communication project for a video game that Stewart Butterfield led the development of. Now it is one of the most popular communication tools for teams.
• Spotify – Daniel Ek and Martin Lorentzon founded Spotify to give people easy access to music. Now it is one of the largest streaming platforms in the world.
• WhatsApp – founded by John Koum and Brian Acton, this simple instant messaging service quickly won over users around the world and was purchased by Facebook in 2014 for $19 billion.
• Stripe – brothers Patrick and John Collison created Stripe to simplify online payments for businesses. Today, it is one of the most important companies in the fintech sector.