With the launch & exponential growth of businesses like Airbnb, Uber, etc., it’s no surprise that the word ‘startup’ has become quickly integrated into the everyday vernacular of the business communities.
In fact, if you work in the tech industry or reside in a big tech center like Silicon Valley or New York, you’re probably very familiar with the idea of a startup business & startup culture.
That being said, although the term startup is often used in the present times synonymously with ‘new/ small business’, many people still aren’t aware of the difference between a startup v/s small business.
So, what’s the distinction? Well, let’s discuss all of it in this blog!
Startup Or Small Business: Which Is Apt For You?
Thanks to the wild success stories, cults of personality & entertainment industry, startups have been given an almost mythological status. They look exciting, but they are also filled with risks & they work better for some types of products & services than others.
However, don’t make the mistake of thinking that startups are the primary way to get rich. You can still grow a small business into a well-oiled machine that makes money while you are not there. Every restaurant franchise, global law firm, & regional car dealership chain began as a small business.
Deciding between a startup v/s small business has less to do with making money & more to do with the industry you are in & your own personality, risk tolerance, & leadership styles.
Startup v/s Small Business: The Difference Between The Two
The term ‘startup’ is so common that entrepreneurs think that’s what they are building – even if they are not. There are some differences between a startup & small business. Here they are:
In the startup v/s small businesses debate, company vision is one of the most integral factors. Startups are focused not just on creating or producing a product but on taking over the world! They want to be the most creative, innovative, & the most disruptive force in the market/ industry.
On the other hand, small businesses are more concentrated on being profitable within an already-determined paradigm. They serve the local market & personal relationships are their lifeblood. In addition, they are often driven by an artistic passion or passed down through family generations.
Startups get most of their funding from VCs, i.e., Venture Capitalists. These are the people/ organizations who make significant investments, like up to $1 million at a time! In exchange, they obtain equity in the business. Thus, if it’s successful, they profit along with the owner.
Small businesses generally take out loans from traditional banks as well as online lenders. The lenders make money by charging interest, which implies the business owner pays more over time but hasn’t given up any equity in the company.
This is the most significant difference between startups & small businesses. Startups wish to grow as quickly as they can, thus increasing the top-line revenue via a business model which can be easily scaled & replicated. This is why startups are typically witnessed primarily in the technology industry/ sector.
Small businesses, on the other hand, use a slower, more cautious growth strategy concentrated on building profits before expanding. They look for long-term & stable growth, which will create a sustainable, long-lasting business. This model is more suited for founders with low-risk tolerance.
Revenue is associated with growth, so it’s no surprise that there are contrasts in startup v/s small businesses. VCs know that their primary investment in a startup might not return the results for years – or at all. Startups aren’t built to return profits immediately. The aim is to make the company public & profit that way!
Small businesses don’t have any investors or VCs to worry about. They are often set to generate profit right away as they follow well-established business models. Moreover, they do not need time to figure out what works because they are not necessarily doing anything differently.
The leaders of startup v/s small businesses usually have innate gifts. Well, there are three different gifts of nature, i.e., you can be an artist, an entrepreneur, or a manager. Startups usually are founded by entrepreneurs who are risk-takers, vision–makers, & energetic business-builders who can jump from one company to another, like putting on a new suit every day!
Well, on the contrary, small businesses are often founded by artists who are passionate creators & connectors who wish to use their greatest skill to motivate & inspire others. Managers, who are process-obsessed, run an efficient small business as well. Remember that anyone can be entrepreneurial, i.e., build a business. However, realizing your true business identity is vital to success.
- End Goal
When you begin a small business, it’s likely that you plan to continue to run it for some time until you eventually pass it on to your family member after you retire. Therefore, until that time, your goal is simple – to stay in the business. However, this isn’t the case with a startup.
A startup is designed to search for a repeatable & scalable business model. The startup might change models to find the best. However, once the startup finds the best business model, the goal of the organization then shifts to execute the model. At that point, the organization is no longer a startup. Instead, it’s a company!
Although this approach might seem philosophical, it is also applicable in the real-world scenario. So, tell us – when the startup is no longer a startup? Perhaps when another company buys them. Or when they go in public with an IPO, i.e., Initial Public Offering.
As you can see, startups, & small businesses are actually much more distinct than most people would initially think. So, why does this difference matter?
At the end of the day, the difference between startups v/s small businesses goes beyond what we have discussed today. It’s much more significant for future entrepreneurs. So, whenever you begin your company, ask yourself: am I launching a startup or a small business?
With the answer you get, you’ll be better prepared to set goals, acquire funding, & create a plan for the future of your businesses!
Suggested Read: Career Planning & Goal Road Mapping