Types of start-ups

So, the decision to create a new company is made. What types of companies there exist? While there are many classification systems, one that is most useful divides start-ups into three categories: life-style firms, foundation companies, and high-potential ventures.

A life-style (“home”) firm is a private enterprise. It usually achieves only modest growth due to the nature of the business, the objectives of the entrepreneur, and the limited money devoted to R&D. This type of firm may grow after several years to 30 or 40 employees and have annual revenues of about $2 million. A life-style firm exists primarily to support the owners and usually has little opportunity for significant growth and expansion.

The second type of start-up – the foundation company (innovation enterprise) – is created from R&D and lays the foundation for a new industry. This firm can grow in 5 to 10 years from 40 to 400 employees and from

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$10 million to $20 million in annual revenues. Since this type of start-up rarely goes public, it usually draws the interest of private investors only.

The third type of start-up – the high-potential venture – is the one that receives the greatest investment interest and publicity (investors are striving to invest money in it). While the company may start out like a foundation company, its growth is far more rapid. After 5 to 10 years the company could employ around 500 employees with $20 million to $30 million in annual revenues. The company usually shortly becomes a public limited company.

The creation of a new venture must be desirable and possible for an individual to change from a present life-style to a radically new one. It is not surprising that the type and number of new business creations vary greatly throughout any country.

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