The concept of “startup” has become increasingly prevalent in economic discourse, especially as new entrepreneurs and innovative companies emerge, challenging traditional business structures. Startups are small companies, typically started with limited resources but with vast growth potential, often through technological innovation and disruptive business models. But how did this term come about, and what is the impact of startups on both large economies and smaller communities? And what happens when startups don’t achieve the expected success?
What Are Startups and When Did the Term Emerge?
The term “startup” was popularized in Silicon Valley, California, during the 1980s and 1990s, but the origins of this business model date back earlier, to the 1950s and 1960s, when the first companies focused on technological innovation began to appear, often with low initial capital and a high willingness to take risks. However, it was in the following decades that the term “startup” gained traction as a definition for businesses with high scalability potential, frequently associated with the tech sector.
The central idea behind a startup is a young company seeking a repeatable and scalable business model, often in emerging markets or with new products or solutions. Startups are typically characterized by their flexibility, capacity for rapid innovation, and often, an unconventional approach to management and operations.
The Popularization of the Startup Concept
Although the term had been used for decades, it was in the first two decades of the 21st century that it gained global popularity, especially with the boom of technology companies such as Google, Facebook, Uber, and Airbnb, all founded in the 2000s, which introduced revolutionary business models.
This phenomenon was amplified by the advent of crowdfunding platforms, like Kickstarter and Indiegogo, and the growth of venture capital, which became more accessible to a larger number of entrepreneurs. However, the most common use of the term “startup” emerged between 2005 and 2015, as the number of companies in Silicon Valley and other global regions like Tel Aviv, London, and Beijing grew exponentially.
The Impact of Startups on the Economy of Large Countries
In major economies such as the United States, China, and European Union countries, startups have played a crucial role in driving innovation and economic growth. The most iconic example is Silicon Valley, California, where companies like Google, Apple, Facebook, and Tesla emerged as small startups and became global giants with market valuations exceeding hundreds of billions of dollars. Google, for instance, started as a startup in 1998 and, by 2024, its parent company, Alphabet, was valued at over $1.6 trillion.
These companies have driven job creation, attracted billions in venture capital investments, and most importantly, contributed significantly to the GDP of countries with large startup ecosystems. Startups also create a multiplier effect, generating business opportunities in areas like financial services, digital marketing, healthcare, artificial intelligence, and e-commerce.
However, this growth comes with challenges. Startups rely on a favorable innovation environment, with policies that encourage risk-taking and competitiveness. When they fail, they can have significant negative impacts on the market. The example of WeWork, a coworking space startup, illustrates this. In 2019, the company was valued at $47 billion, but after a failed business model and governance issues, its valuation plummeted to under $10 billion, leading to mass layoffs and a significant loss of investor confidence.
The Impact of Startups on Small Communities
While most large startups are concentrated in major urban centers and developed countries, startups also have the power to transform smaller communities, both in wealthy nations and developing countries. By seeking to solve local problems or serve niche markets, startups can create jobs, develop new technological solutions, and foster economic growth in underserved regions.
An example of this is the use of platforms like Kickstarter to fund innovative products from small communities or emerging companies in low- and middle-income countries. Social impact startups, such as those focused on education or healthcare in developing nations, have also stood out by creating solutions that meet specific needs of these populations, like the Indian startup Byju’s, which transformed the education sector with a digital learning platform, raising over $2.5 billion in funding by 2020.
However, the growth of startups in small communities also presents challenges. The lack of access to venture capital, technology infrastructure, and skilled labor can limit the success of local initiatives. For many entrepreneurs in small towns or rural areas, competing with major urban centers like New York or San Francisco can be a significant obstacle.
Examples of Startups That Failed
The failure of startups is also a part of the economic landscape. In addition to the previously mentioned WeWork, other notable failures include Theranos, a biotechnology startup that promised to revolutionize blood testing. Valued at $9 billion before its collapse in 2018, Theranos became one of the biggest disasters in the startup ecosystem. Another example is Quibi, a streaming platform created by Jeffrey Katzenberg and Meg Whitman, which raised $1.75 billion before being shut down in 2020 due to a lack of users and a poorly executed business model.
These examples highlight that while startups are seen as engines of innovation, they also come with high risks, and not all will escape failure. The volatility of the venture capital market and the lack of experience of many founders contribute to the high failure rate, with about 90% of startups failing to achieve the expected success.
Conclusion: The Future of Startups in the Global Economy
Startups continue to be an engine of innovation and economic growth, both in large countries and in smaller communities, but their risky nature means that the financial impact can be both positive and negative. The startup business model is increasingly present in global economic strategies, and the lessons learned from the success and failure of companies like Google, WeWork, and Theranos continue to shape the innovation investment landscape.
While large corporations still dominate the market, startups have shown that it is possible to challenge the status quo, providing new solutions to old problems and creating economic opportunities in areas that were once overlooked. However, the volatility and uncertainty of the startup world require caution, strategic planning, and, of course, constant innovation to ensure long-term sustainability.