Why start-ups never want to grow up

In business, the word ‘start-up’ is the new black – it’s wildly fashionable, looks good on everyone and is so overused that its meaning is starting to fade.

Sure, the word has a working definition – it typically refers to a young company, usually founded by a small group of entrepreneurs, that's implementing disruptive business models to shake up an industry. But that definition has well and truly morphed into a badge of sorts.

When it was reported that Freelancer.com was mulling a $430 million offer from Japanese firm Recruit Co, it was referred to as a start-up. When the world’s largest online design marketplace, 99Designs, expanded into South America earlier this year, it was referred to as a start-up. In 2010, when Facebook employed hundreds of staff and was well on its path to world domination, it was lauded by TechCrunch’s Crunchie awards as the “best overall start-up”. That was the third year in a row that it had won the award.

The simple phrase has spun so far out of control that now even big, incumbent companies feel they have an argument in appropriating it. After all, given all the other wonderful business phrases attached to the trend – lean, agile and innovative – who wouldn’t want to be considered a start-up?

Money or mindset?

While nailing down what a start-up actually is isn't easy, perhaps it's time to draw a line in the sand and establish when a start-up actually graduates.

The majority of the start-up sector is quite happy with an open-ended interpretation of when the start-up honeymoon is over, but there are a few exceptions.

Venture capitalist and entrepreneur Alan Jones says the change happens when a company hits its Series B round of funding. In other words, your company reaches a point where it's successful, turning a substantial profit, and now needs an injection of cash to further expand its reach and revenue pool.

"Part of being a start-up is that you really control your own destiny, and that starts to change as you take on rounds of investment," he says.

In contrast, those working inside start-ups see it as more of a company mindset issue. For Envato’s Collis Ta’eed, a company is no longer a start-up when they have a stable business structure and a growth trajectory. He knows his company is in this phase and has been for a while, but that hasn’t stopped Envato from using the term.

“Are we still a start-up? Do we refer to ourselves that way? I think we do,” Ta’eed says.

“Perhaps in some our literature on some of the website. It must say it somewhere."

Michael Hansen of the globe-trotting, multinational start-up Zendesk opts for a more philosophical approach. He says that when you lose the “childish joy” of trying new things and being in new avenues then you don’t really deserve the title. Basically, as long as start-up companies keep experimenting and growing they'll never grow up.

But the reality is, they always do.

Reality check

Take Yahoo for instance. Before Jones got into the venture capital game, he spearheaded Yahoo’s expansion into Australia back in 1997. He explains that the company went to enormous lengths to preserve the start-up culture it pioneered in Silicon Valley back in the '90s.

“We wanted everybody who joined the company to feel like they weren't just coming in there to be an employee, they had permission and our expectation of them was to really change the industry and improve how we did things,” Jones said.

“When we first started out, we had a Monday morning coffee meeting, all hands coffee meeting,” Jones said. The company would shout each employee a hot drink and a pastry of their choice to help soften the blow of a Monday morning.

“That's easy when you have five people – it's pretty challenging when you have 155,” he said.

In the end, Yahoo Australia ended up delegating the job to around six employees, and consulting around five coffee shops in order to get the order filled in time.

That was Yahoo back in 2002. Just look at it now. Marissa Mayer’s first point of call when she became the company’s head last year was to re-stimulate that culture. She handed out free smartphones, reined in a wayward work-from-home policy and went to other extremes to bring start-up culture back to Yahoo.

If you think about it, the trend to cling onto the phrase ‘start-up’ really is the corporate world’s version of Peter Pan syndrome. Nobody wants to grow up and lose the coolness, the edginess that comes with being a disruptive start-up.

They want to stay young and innovative forever – even when they are the leader in their given industry.

As Ta'eed puts it: "Nobody really wants to work for a boring old corporate." With many companies not budging on the label any time soon, it's a wonder whether prospective employees will feel any different working for an old, incumbent start-up?