03 April 2025
What Defines a Startup Company?
The business market is constantly influenced by internal and external pressures such as industry competition changes, new social trends, financial volatility, and product innovations. With such frequent changes and the need for businesses to adapt to the external environment, opportunity gaps often emerge. From these opportunities, entrepreneurs are able to brainstorm ways to enter the market with their own startup.
An average of 4.7 million businesses are started in the US every year. However, only about 47% of these businesses can expect to last longer than five years after being launched. There are a multitude of decisions that are needed to begin a startup, all of which help define exactly what constitutes a startup.
Startups are businesses that are in the early stages of operations. They are created by one or more entrepreneurs who have developed a product or service to meet a new demand.
Entrepreneurs often utilize the strategies from the Lean Startup method to ensure their product or service is truly meeting the demand of their target audience. In this method, it is important to follow a continuous loop of building, measuring, and learning. For example, an entrepreneur will build a rough idea, measure the acceptance of this idea through consumer interviews, and learn how to improve the original idea from the interview feedback.
When an idea is honed into a marketable product or service proven to be in demand, entrepreneurs may feel confident in launching their startup. However, there are still a number of factors that need to be considered as the startup is being launched.
In addition to establishing what product or service a startup will be selling, it is important for startup founders to make a clear mission statement, vision, and goal(s) for the company. The mission statement and vision will help guide the steps taken to achieve the overarching goals.
Having a well-defined structure will encourage clear communication and responsibility distribution. This structure also sheds light on who will be liable and carry the greatest risk for the startup. One of the major challenges of launching a startup is managing high costs with limited capital. Hence, high risk is associated with these early stage startups as owners are often using their own money or borrowing money to finance a business that is not guaranteed to succeed. The most popular structures for businesses include:
Business lawyers are a helpful resource for determining the type of structure that will best align with the vision of the startup in addition to assisting the setup of the structure. These lawyers are also great support tools when it comes to understanding how to finance a startup. When revenue is minimal from product or service sales, startups often lean on internal investments from owners, crowdfunding, loans, angel investors, and venture capitalists to increase their capital. Having reliable, legal records of the varied sources of capital will increase the chances of success for a startup.
Starting a business is both a time of excitement and stress as unique obstacles can emerge at any point in launching a startup. To be a long-lasting business, startups need to stand out against competitors, raise capital, and ensure processes are done legally. Startup owners may have more freedom in making their schedule, but they can also expect to be working well over 50 hours per week.
Even with a great deal of time and effort, there is still a major risk of failure. Experienced business lawyers can do their best to lower this risk with assistance on:
Recognizing ways in which external people can help catalyze the creation of a business is crucial for increasing the chances of sustainable startup prosperity.
Remember that less than half of new businesses survive within five years of launch. There are a number of issues that prevent the sustainable success of a startup company, including but not limited to poor structure, lack of investors, or weak protection of intellectual property. Working with an experienced legal team can benefit new businesses as they face legal obstacles like creating financial policies and contractual terms with other parties.
At Begum Pelaez-Prada PLLC, we are here to help you make your dreams into reality by supporting the success of your startup venture. Building a strong foundation for your startup is crucial to ensure you launch a legal and protected business. Managing a business, especially in its early stages, can be stressful. Call today to speak with Sasha Begum and her team to avoid taking on the burden of handling startup legal requirements by yourself.
