As the term "startup" has become more widespread in Japan, it seems to have lost its original meaning and context, which referred to a distinct and specialized form of entrepreneurship that aimed for rapid growth while leveraging technology. Instead, it is now being used to describe entrepreneurship in general.
While the popularization of the term "startup" has positive aspects, it can also hinder appropriate support measures and policy discussions. Therefore, I propose using new terms such as "high-growth startups" to facilitate more precise discussions.
The Meaning of "Startup"
Let's examine some of the English articles that formed the basis for the term "startup."
According to Wikipedia's "Startup Company" article,
"Entrepreneurship includes all new businesses, including self-employment and businesses that never intend to become registered, but startups are new businesses that intend to grow large beyond the solo founder."
This definition distinguishes startups from small businesses.
Furthermore, Wikipedia's "Small Business" article states, "These four concepts overlap, but there are important differences, and the main differences can be summarized as follows":
Self-employment: An organization established primarily to provide income to the founder, i.e., a sole proprietorship.
Entrepreneurship: All new organizations.
Startup: A new organization (with employees) established for growth.
Small business: An organization that is small (in terms of employees or revenue), regardless of whether it intends to grow or not.
However, when looking up the term "startup" in English dictionaries, it is defined as a "newly established business," so using the term "startup" to refer to entrepreneurship in general is not incorrect.
For researchers, it may be necessary to treat all companies within a certain number of years after their establishment as startups, as it is unclear at that stage whether they will remain as small businesses or experience rapid growth. Similarly, policymakers need to draw clear lines when formulating tax policies and other measures.
It is worth noting that the term "startup" gained popularity abroad alongside the dot-com bubble, likely because it was intended to represent a different form of entrepreneurship than what had existed before.
In Japan, despite the existing term "venture company," the term "startup" began to be used with the intention of conveying a different image or aspiration compared to traditional entrepreneurship. The government's renewed focus on promoting "startups" stems from the belief that the emergence of rapidly growing startups will benefit the country. In this context, if the term "startup" becomes synonymous with "entrepreneurship in general" or "companies within a certain number of years after establishment," it may lead to various discrepancies in discussions and policies.
Examples of Confusion When Startup Equals Entrepreneurship in General
For instance, if the government allocates a budget to increase the number of rapidly growing startups with the aim of creating a major industry in a region, but the region understands "startup" to mean "entrepreneurship in general," the resulting policies may end up supporting the opening of restaurants or shared offices instead.
Moreover, for most entrepreneurs, policies related to venture capital (VC) are irrelevant. If people perceive "startup" as "entrepreneurship in general," they may react by saying, "We don't care about VC policies; we want more policies related to loans."
By lumping everything under the term "startup," the alignment with policy objectives becomes unclear.
Furthermore, while expanding the definition of "startup" to include all entrepreneurship may allow achieving the goal of creating ten times more startups, it is questionable whether this aligns with the original policy objectives.
In fact, there are examples of local governments claiming to support startups while actually supporting the opening of restaurants, and it is necessary to reconsider whether this is the kind of "startup" that is currently needed.
As someone in charge of the field, I understand the temptation to support the establishment of small businesses and count them as startups to meet targets when there are few rapidly growing startups in the region. However, this approach is ultimately unsatisfactory for both those creating the scores and those receiving them. It would be better to clarify the terminology and align everyone's goals.
Proposing the Term "High-Growth Startup"
To facilitate clearer discussions, I propose using the term "high-growth startup" to explicitly include the original meaning of "rapid growth" in what we have traditionally called startups.
The term "high growth" is often used in research papers, such as "high growth firm," so it is not an unfamiliar choice of words.
However, opinions may vary on what level of growth is considered sufficiently high. Therefore, it might be beneficial to set a certain threshold for growth.
One potential criterion could be "having the intention and plan to achieve annual sales of 10 billion yen (= $100M USD) within 10 years (or 100 billion yen within 15 years for deep tech and other long-term projects)." Overseas, an annual revenue of $100 million is often mentioned as a simple benchmark for high-growth startup ideas. With annual sales of 10 billion yen and a profit margin of 50%, the profit would be 5 billion yen. Assuming a price-to-earnings ratio (PER) of 20, the market capitalization would reach 100 billion yen.
The ease of achieving 10 billion yen in annual sales, profit margins, and PER varies depending on the business sector, so this criterion should be considered a rough guideline. However, having such a benchmark can help determine whether a startup qualifies as a high-growth startup to some extent.
That being said, even with such criteria, it is challenging to externally determine whether a startup is high-growth. It is a matter of the company's intention to aim for 10 billion yen in annual sales, which makes analysis more difficult. There may also be exceptional cases where high growth is achieved unintentionally. Setting criteria based on obtaining growth capital from VCs or other sources also has limitations, as some companies achieve rapid growth without external funding, while others receiving external funding may not appear to have the potential to reach 10 billion yen in annual sales.
However, achieving such rapid growth is difficult without intentional effort, and it is crucial to distinguish whether the "startups" being discussed are aimed at high growth or refer to entrepreneurship in general to avoid various adverse effects. Clarifying the terminology can make discussions more productive.
Conclusion
In a previous article titled "The Four Types of Entrepreneurship," I introduced the different forms of entrepreneurship.
Not all startups should aim to become rapidly growing startups, and only a small portion of businesses are suited for high growth. The emergence of many startups may probabilistically lead to the emergence of high-growth startups.
However, if high-growth startups are currently needed in Japan and we want to increase their probability of success, it is necessary to use terminology carefully and engage in discussions while confirming definitions. This approach can lead to the development of appropriate policies and support measures, increasing the likelihood of nurturing industries that can be passed on to the next generation.
Rather than fighting to restore the original meaning of "startup," I believe it is essential to create new terms and guide discussions towards greater precision.
