Not too long ago, I ran into this thread in the Entrepreneurs and Startups in Malaysia Facebook group about the question, “When do startups stop being called startups?”
I asked my team what they thought about this, and we all agreed that there didn’t seem to be a universal consensus on the criteria yet.
From what we’ve seen, companies as old as 5 years old or even companies as big as Grab are still referred to as startups.
How then does a company graduate from being called a startup? Well, take a look at what Malaysian entrepreneurs have to say about this topic.
When It Hits Maturity
The most liked answer was from a commenter who said that companies graduate from being called startups when they corporatise.
To quote their comment, “For example, a boy is called a man when he is mature. Maturity is an internal thing.”
“To corporatise, the business must have found a repeatable and scalable business to afford corporatisation. Corporatised means that the company is run by systems and processes, and no longer by hustling and experience alone,” they shared.
They defined maturity in several ways, whether it meant achieving a stable, positive cash-flow, having no critical need for seed funds, or even being ready to burn the extra cash for growth.
It seemed like many others found their comment agreeable. Another commenter said, “There are actually 5 stages of a company’s life. That is: Ideation, Startup, Growth, Expansion and Maturity.”
“To know ideally when you have exited your startup phase is when you start witnessing ‘revenue-wise’ you have recurring incomes that will help you cover your business expenses,” they added.
Another commenter suggested that companies which haven’t generated enough net cash-flow to sustain themselves yet or still need investors money to expand will still be considered a startup.
Some Prefer To Set The Bar Themselves
Among this pool of suggestions, there were also entrepreneurs who prefer to set the terms of graduation for themselves instead of following the status quo.
An entrepreneur who runs 4 companies shared that the company must at least be consistent in generating half a million in revenue for at least 3 years consecutively.
“At the same time must have all the business system from marketing, finance, HR, operations, customer service all in place,” they added.
Speaking of that 3-year timeline, there were a couple of commenters who shared a similar sentiment.
Another commenter also gave some justification for their definition. “We’ve asked Cradle and MDEC this question before. In fact, they don’t offer grants for that project if it’s already been operating for more than 3 years. But there are ways to negotiate still.”
However, some startups may find that difficult to achieve while opting to persevere, hence any smaller goals like these are valid too, according to this commenter:
Some commenters also shared that it might be just about the mindset behind it, when a founder or leader feels that they’ve already grown.
However, a commenter dove deeper into that definition of “mindset”, and suggested the difference between the mindset for a startup VS a business.
“I think the difference between startup and a business is that startup focuses on valuation, while business focuses on profit. You can be a business and not be profitable, so it’s a mentality thing,” they shared.
“But startups need to have a good valuation for funding, not being profitable. Because the moment they are profitable, that’s when their valuation drop. Weird I know, but it’s true.”
What Do Other Biz-Driven Platforms Have To Say?
In this article by Tech In Asia, they suggested that small businesses typically focus on making a profit as soon as practical, whereas startups explore a new business model or aspect of a market with potential for much greater growth.
Hence, oftentimes the goal of small businesses is to provide a livelihood for the business owner. On the other hand, a startup is a riskier experiment that looks to create new markets or disrupt existing ones.
However, the graduation from the label can be due to several factors like listing on a stock market with an IPO, product-market fit, a shift in mentality, etc.
This article by Business Insider also wrote that although a company is a startup until it finds product-market fit and has begun to scale, it’s all up to the company however they want to name themselves, according to an associate at a VC firm.
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From this thread of discussion, it’s safe to say some Malaysian entrepreneurs play by the norm of graduating from the startup label whereas some choose to play by their own rules.
As for whether or not this label brings any benefits is still up for debate. The 2016 version of the Companies Act in Malaysia did make it easier to launch a business at low cost with less paperwork though.
Editor’s note: The information above has been changed to reflect greater factual accuracy.
According to QuickBooks, some of these benefits are:
- An individual can incorporate a business and still enjoy the benefits of limited personal liability that a corporation offers.
- Lower operating costs (in the past, small corporations had to involve outside entities, including auditors at cost, to run their businesses).
- Startup owners and teams can focus their energy creating products and services (in previous years, business owners had to focus on tedious matters such as having general meetings, shareholder meetings, filing memorandums, drafting resolutions).
Ultimately, it seems clear that there’s no right or wrong as to how long a business chooses to remain being called a startup for its own reasons.
- You can read more opinion pieces we’ve written about here.
- You can read more startups we’ve written about here.
Featured Image Credit: Carpit pitching at SITEC SAP 2019