Malaysian Entrepreneurs Discuss When A Startup Stops Being A Startup

Not too long ago, I came across this discussion thread in the Entrepreneurs and Startups in Malaysia Facebook group on the question “When do startups stop being called startups?”

I asked my team what they thought about it, 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 young as 5 years old or even companies as large as Grab are still referred to as startups.

How does a company come out of the status of startup? Well, take a look at what Malaysian entrepreneurs have to say about it.

When it reaches maturity

The most popular response comes from a commentator who said that companies stop being called startups when they transform into corporations.

To quote their comment: “For example, a boy is called a man when he is mature. Maturity is an internal thing.

“To become corporatized, the company must have found a reproducible and scalable company to enable corporatization. Corporate means the business is run by systems and processes, not just the hustle and bustle and experience, ”they shared.

They have defined maturity in a number of ways, from achieving a stable and positive cash flow, not having a critical need for seed money, or even being willing to spend the money. extra for growth.

A commentator who explained his position that a startup is a “premature baby”

It seemed that many others found their comment pleasing. Another commentator said: “There are actually 5 stages in the life of a business. That is to say: ideation, start-up, growth, expansion and maturity. ”

“The ideal way to know when you’ve left your start-up phase is when you start to see that you have recurring income that will help cover your business expenses,” they added.

Commentator thinks it’s not seed money critical for a company to step out of startup status

Another commentator suggested that companies that have not yet generated enough net cash flow to sustain themselves or that still need investor money to grow will still be considered a startup.

Some prefer to set the bar themselves

Among this pool of suggestions, there were also entrepreneurs who preferred to set the graduation requirements for themselves instead of following the status quo.

An entrepreneur who runs 4 businesses said the business should at least be consistent in generating half a million in revenue for at least 3 consecutive years.

“At the same time, the whole business system needs to be in place, from marketing, finance, human resources, operations and customer service,” they added.

Speaking of this 3-year timeline, a few reviewers shared a similar sentiment.

Another contributor also gave some justification for their definition. “We’ve asked this question of Cradle and MDEC before. In fact, they do not offer grants for this project if it has been running for more than 3 years already. But there are still ways to negotiate. “

However, some startups may find this difficult to achieve while going for persistence, therefore smaller goals like these also apply, according to this commenter:

A reviewer who believes even a small goal of graduating like your 10th client is valid

Some commentators have also shared that it could just be the mindset behind it, when a founder or leader feels he has already grown.

A commentator who believes this is how the founder feels

However, one commentator delved into this definition of “mindset” and suggested the difference between the mindset of a startup and a business.

“I think the difference between starting up and a business is that starting up is focused on evaluation, while businesses are focused on profit. You can be a business and not be profitable, so it’s all about the mindset, ”they shared.

“But startups must have a good valuation of the funding, not be profitable. Because when they are profitable, that’s when their valuation drops. Weird, I know, but it’s true.

What are other business-oriented platforms saying?

In this Tech In Asia article, they suggest that small businesses typically focus on making profits as soon as possible, while startups explore a new business model or aspect of a market with much greater potential for growth. .

Therefore, often 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 seeks to create new markets or disrupt existing markets.

However, the exit of the label can be due to several factors like the stock market listing with an IPO, product-market fit, a change in mentality, etc.

This Business Insider article also wrote that even if a company is a startup until it finds a product market and begins to scale, it all depends on the company no matter how it is. wants to be named, according to a partner of a venture capital firm.

– // –

From this thread, it’s safe to say that some Malaysian entrepreneurs play by the startup label’s graduation standard while some choose to play by their own rules.

As to whether or not this label brings benefits, it remains to be debated. Malaysia’s Companies Act, which became law in 2016, made it easier to start a low-cost business with less paperwork.

According to QuickBooks, some of these benefits are:

  • An individual can form a business while still enjoying the benefits of limited personal liability offered by a corporation.
  • Reduced operating costs (in the past, small businesses had to rely on outside entities, including cost auditors, to manage their operations).
  • Start-up owners and teams can focus their energy-creating products and services (in previous years, business leaders had to focus on tedious issues such as holding general meetings, shareholder meetings , filing memorandums, drafting resolutions).

Ultimately, it seems clear that there is no right or wrong as to how long a company chooses to remain called a startup for its own reasons.

  • You can read more opinion pieces we’ve written about here.
  • You can read more of the startups we’ve written about here.

Featured Image Credit: Carpit pitching at SITEC SAP 2019

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Jothi Venkat

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