Through a fortunate conversation with an investor, I was able to understand what a startup truly is.

I had the opportunity to drive the founder of a global accelerator (an early-stage investment company for startups) to an event one day. On our drive, he was very busy communicating with venture capitalists, corporate executives, and startup founders on three separate cell phones. I was worried I might not get the time to ask the one question I was really curious about. Luckily, I got that chance when he hung up.

I told him there was a startup which had participated in my startup incubation program whose annual sales had already reached US$400,000 in two years. I had given some advice to the CEO of the startup about aggressively expanding the business, but he didn’t seem to listen to my opinion, so I wanted to ask the founder how I could encourage the CEO to take my advice.

The definition

He answered firmly, “An accelerator like mine would never call such a company a ‘startup’.”

I was surprised. This company had ever-increasing sales at home and abroad. I could not understand why he would feel this way, but he continued.

“Only a company which is growing at a rate of 30 per cent or more per year is called a ‘startup’. We only invest in companies with this potential.”

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My incubation company holds weekly IR pitching sessions to discover startups, and we support more than 100 companies per year through various programs. Even though I was already supporting dozens of startups each year and I worked with startups regularly, I could not come to terms with this simple concept. If it was true, only a few early-stage companies could be called a ‘startup’.

Only a company that will be able to exit (realise profits by selling stocks as an investment) through increasing its corporate value due to rapid growth is a startup. In fact, the term startup was conceptualised by investors who took big risks in a company’s very early stages to create high returns through corporate investments.

Secrets of fast-growing startups

I’d also like to share another conversation that I had with an investor that changed my understanding of startups. I had arranged an investor meeting to introduce a famous accelerator in South Korea to the founder of a promising startup, who had founded his company on his experience as an engineer at a large IT company.

The meeting seemed to go smoothly, but after the meeting, the investor decided not to invest. She simply said: “It’s undoubtedly an impressive company, but the size of the CEO’s vision and goals simply aren’t ambitious enough for us.”

The CEO’s ambition and targets fuel the rapid growth of any startup. Investors meet with many startups every day to identify those with the biggest dreams. However, not many startups have this vision for rapid growth.

According to the ‘2020 Single-Person Startup Company Status Survey’ published by the Ministry of SMEs in South Korea, it takes an average of 2.5 months for a company to generate its first sale. And according to the ‘business operation plan within the next one year’ survey conducted on the same enterprises, 88 per cent of companies said they would maintain their current business operations, and only 6.3 per cent of companies plan need to expand their business.

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Based on my six years of experience, most startups don’t keep breaking the status quo once they reach a certain level; they don’t continue to set bigger and more ambitious goals. If the initial goal was not that high, there is rarely any reason for further expansion. Instead, they prefer a conservative attitude that maintains the current operating profit. Not enough companies reach big enough goals.

As you probably expect, it is companies among this 6.3 per cent that are most likely to become unicorns (enterprises valued over US$1 billion among startups in less than 10 years). I hope you now understand why most startups lack the ambition that is necessary to succeed and why the articles about the investors who discovered these unicorn companies are causing such a buzz.

What size goals was the CEO thinking that you met today? It could result in very different profits from my investment.

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