A recent conversation with a colleague got me thinking about an issue: After starting an online business, when does said business outgrow the label of being a startup? With careful thought, I think I’ve come up with a definitive answer.
Starting an online business is a daunting task, and finding payment processing solutions for such can be tricky. Acquiring banks tend to be leery of the risk associated with e-commerce startups, which will almost always pay higher rates for processing transactions.
That’s where I discovered my answer.
What led to my ‘startup’ curiosity?
My inquisitiveness came from a conversation at a recent dinner party where I ran into a colleague, who had left a longtime sales position a year ago at a huge, well known corporation to join a startup based in Boston.
“I heard you left The Corporation and joined The Startup. How’s it going?” said I.
“Good, real good,” my colleague replied.
“Wait…is it still a startup?” I asked him.
He gave me a quizzical look. ‘I don’t know. We’ve got about 200 people working for us.’
“Oh wow. Maybe not.”
A few seconds passed, and I asked the question. “So, after starting an online business, when do we stop referring to it as a startup?”
He wondered. “That is a great question,” he said. “I couldn’t tell you.”
The conversation then morphed into dinner party fare: The rigors of youth hockey, high school sports and a recent concert I attended.
But the whole startup thing stuck with me.
When does an online business outgrow the ‘startup’ label?
- Is it the number of years doing business?
- The number of employees a company has?
- The amount of annual revenue?
Or some may feel it’s more a state of mind.
My definition is a little more practical. Having said earlier, when an e-commerce startup approaches us about getting a merchant account, we’re honest with them: They’re going to pay slightly higher rates, possibly a rolling reserve, because the acquiring bank is taking a degree of risk by offering them a merchant account.
Once e-commerce startup merchants have completed the provisions of the rolling reserve and shown good faith in the first six months to a year of payment processing, we have always encouraged them to approach their acquiring banking partner or PSP to begin negotiations on lowering their merchant account fees and rates. The merchant has six months to a year of solid payment processing history and financials to make a valid case.
Hence, once the e-commerce startup merchant successfully negotiates for lower rates, that is the moment the business sheds the ‘startup’ label.
Those are the merchants with whom we want to partner.
Starting an online business: Instabill helps you and stays with you
With a startup merchant account from Instabill, we don’t only help you launch, we’ll remain on hand as consultants for the life of your merchant account relationship with us.
After starting an online business, we’re curious to know at what point you negotiated for lower rates and fees.
Was it immediately following completion of your rolling reserve?
Was it a year, 18 months, or longer?
Leave us a comment below.