Why Does a 5-Year-Old Company with 1500 Employees Still Call Itself a Startup?

What comes to mind when you hear the word startup? Do you envision a 10-year-old tech company with a rapidly growing user base and a flurry of new hires? While the term is often used for companies in their infancy, it is not uncommon for even seasoned and well-established organizations to embrace the entrepreneurial spirit and growth-focused mindset of a startup. Let’s explore the reasons why a 5-year-old company with 1500 employees might consider itself a startup.

Excusing Financial Challenges

One of the primary reasons companies continue to identify themselves as startups is to provide a rationale when faced with financial challenges. For a 5-year-old company with 1500 employees, being labeled as a startup allows the board of directors and shareholders to reasonably expect prolonged periods where the firm is not profitable or only marginally so. This designation can mask the reality of the company’s financial status and aspirations.

Justifying Deviation from Best Practices

Another justification leans on the belief that startup practices are the norm. When teams avoid implementing standard practices, such as rigorous testing, code refactoring, or adopting DevOps methodologies, they often do so under the guise of being a startup. The rationale is twofold: to save costs and to align with the presumed flexibility and innovation of a fledgling company. However, this oversimplification can lead to poor decision-making and long-term inefficiencies.

Projecting Motivational Youth

Entrepreneurial companies often aim to project an image of vibrancy and youth to their employees. This perception helps to energize the workforce and aligns with the belief that a startup’s vitality and passion can inspire top talent. By branding themselves as startups, employers can tap into a pool of ambitious, entry-level workers who may be willing to accept lower wages in exchange for the potential of future stock options. The catch, as history has shown, is that stock options often expire worthless due to company valuation cuts or other market factors.

Advantages in Hiring and Retention

John Scott of Neostrada, a branding agency, argues that identifying as a startup can be a competitive advantage in the hiring market. Companies can attract a diverse range of employees, including those who may not have the necessary experience but are willing to join a rapidly growing, innovative team. This perspective can also help in retaining key talent, particularly in exchange for the promise of a pie-in-the-sky vision that may come to fruition.

Business Dynamics and Expectations

A startup culture often emphasizes growth over profitability, a characteristic that can be harder to maintain in a company with 1500 employees. Tech companies, in particular, often face significant capital costs, particularly in early stages, and the most valuable asset is daily active users. Acquiring these users can be costly, but maintaining them is comparatively inexpensive. The concept of network effects further amplifies the importance of rapid growth over immediate profits.

Shareholders of a startup typically prioritize exponential growth, assuming that the costs involved in acquiring users will decrease as the company reaches critical mass. The ultimate goal is to scale the user base exponentially, irrespective of the immediate financial costs. Companies that fund themselves with an expectation of becoming a 10 billion dollar company are often expecting losses from investors, even if the company is profitable, as long as they reach the target revenue of 1 billion.

Conclusion

The classification of a 5-year-old company as a startup is often more about mindset and strategy than actual size or age. Companies of all sizes may endorse the idea of startup culture to foster a dynamic, innovative environment, justify financial flexibility, and appeal to talent. However, as companies grow, they must evaluate whether the benefits of startup culture outweigh the risks and whether the branding serves their long-term strategic goals. The distinction between true start-ups and larger, established entities is crucial for investors, employees, and the market at large.