The question of startup VS small business has raised many questions among small business owners and entrepreneurs who are just starting out. It’s likely that if you’ve worked in or are familiar with technology, you’ve met entrepreneurs who are continuously starting and growing new businesses. So, have you ever sat down and thought about what a startup is in its most basic form? Is it merely a catchy term for a business that is growing at a rapid pace? Or maybe there’s an actual difference between a startup and a small business, depending on how it’s classified.
Startups and innovative small businesses are like children and dwarfs. It’s a small or medium-sized company, and both of them fit that description. This is the point at which their similarity ends. It will be interesting to see how small and startup businesses differ.
Startup VS Small Business: What are the Real Differences?
Let’s understand the two business types better before reviewing their differences.
What exactly is a startup?
To begin, let’s take a deeper look at what it means to be a startup company. Even though there are several ways to describe a startup, most people stick with the definition proposed by Silicon Valley entrepreneur Steve Blank in 2010: “A startup is an organized form to search for a repeatable and scalable business model.”
Not only is a startup looking to identify and execute its business model, but they’re also aiming to do so on time. And they do it in a way that substantially influences or disrupts the current market.
What is the definition of “small business”?
Understanding the definition of a small business is essential to comprehending the difference between a startup VS small business. An ASQ definition of a small business is one that has fewer employees and lower yearly income than either a corporation or a regular-sized firm, whether it is a partnership or a sole proprietorship controlled by the owner(s). Countries and industries have different definitions of “small,” which affects whether or not a business may ask for government assistance or qualify for special tax status.
Even though small firms may typically apply the same quality management systems as bigger organizations, they may encounter a variety of unique hurdles along the way. On the other hand, small firms often lack the human capital and up-front financial resources necessary to invest in high-quality projects. Higher levels of upper-level dedication and accessibility, on the other hand, may be found in smaller companies, and internal communication can be more clear.
Differences Between Startup VS Small Business
So, now you know what a startup is and what a small business is. Let’s understand the differences between startups VS small businesses in detail now.
1. The urge to grow
In terms of growth intent, one of the most significant distinctions between a startup VS small business is the scale at which you do business. As previously said, startup founders are trying to have a huge effect and disrupt the current industry with their business ideas. And this means they are not looking to keep a small, limited staff indefinitely.
As a result, they are attempting to expand rapidly. According to what you may expect, this is one of the reasons why so many companies are created in the technology industry. Why? Because technology has a broad reach, is readily scaled, and can be financed rapidly.
The US Small Business Administration (SBA) says that a small business is a “for-profit business of any legal structure, independently owned and operated, not nationally dominant in its field.” This is different from the concept of a startup. According to this statement, the growth aim of a startup is vastly different from the growth intent of the majority of small businesses in the world. However, unlike startups, which are founded for development, a small business is not always in this position.
2. Startup VS Small Business Funding
Is this one of the most significant differences between a startup VS small business? Indeed, yes. In general, it’s going to be harder to get funding for startups and small businesses than for bigger businesses. On the other hand, startups are much more likely to use and succeed with equity financing than small businesses.
Equity financing allows startups to find angel investors or venture capitalists ready to provide huge sums of cash in return for a portion of the company’s equity or ownership. Most of the time, these investors provide small amounts of funds in “rounds.” And then, with each round of financing, the startup must give up stock in the company in exchange for the capital.
Because of this, the company may reach a point where it will no longer exist as an independent legal entity as it continues to raise money. Although equity financing enables the founders to diversify their ownership of the firm, it also allows them to obtain substantial sums of funds while earning the mentoring and direction of the investors.
On the other hand, equity finance is simply not a viable option for the majority of small firms. The majority of small business owners do not want to hand over control of their businesses. And the majority of angel investors and venture capitalists are only keen on working with companies with tremendous growth potential that are disrupting their respective sectors.
Instead, small business owners often rely on various types of debt financing to support their operations. And these may include loans, lines of credit, asset-based financing, and so on.
3. Business objectives
The goals and objectives of a startup are intrinsically tied to its intention to expand. An aspiring startup entrepreneur wants to disrupt the industry with their scalable and effective business model, develop as rapidly as possible, win the competition, and so on.
On the other hand, the same is not always true for a small company owner. Instead of disrupting the industry or breaking into an entirely new market, all you need to start a small business is the desire to do so and an intended audience that you can successfully target. It is possible to operate a profitable small business while generating an income as long as you can manage your time well.
You can see how growth and company objectives are interwoven here. Startups seek to expand to have a greater chance of disrupting the market. However, small businesses are established for the goal of entrepreneurship and servicing a specific geographic area rather than with the aim of expansion on a wide scale.
4. Startup VS Small Business End goals
The final objectives of a startup VS small business are fundamentally different from one another. Almost certainly, when you establish a small company, you want to keep it going for a long time—at least until you finally pass it on to a family member or sell it to an interested buyer when you retire. Your primary priority should be to keep operating your business up to that point. However, when it comes to starting a business, this is not the case.
Founded to find a repeatable and scalable business strategy, startups are temporary entities. The company may need to alter business models many times before finding the perfect one. But once it does, the organization’s primary focus switches to putting that model into action and growing the business. At that moment, the entity no longer qualifies as a startup but rather legally, a company.
5. The level of risk
There is always some element of risk present when planning to launch a new business. However, there is an additional element of risk involved with a startup compared to a small business when putting them side by side.
Creating a product or service that has the potential to disrupt or have a substantial influence on the market is, as we’ve explored extensively, the driving concept behind a startup. By going through the process of researching, raising money, testing the product or service, and so on, you are putting your confidence in your business. You are placing your faith in your startup’s ability to succeed and make an impact.
The downside is that you’re taking a significant risk and might end up losing your entire life savings if your venture doesn’t work out. Despite the many risks connected with establishing a small business (and the fact that 20% of them fail within the first year), small businesses have the advantage of entering into an already existing industry. And this results in reduced risks. So, they might be far more manageable than they are for startup entrepreneurs.
Treinetic’s Final Thoughts on Startup VS Small Business
As you can see, startups and small businesses are quite different from one another, contrary to what most people believe. So, why is it important that there be a difference? At the end of the day, the distinction between a startup VS small business extends much beyond our common understanding of these terms and phrases. It is even more important for aspiring entrepreneurs in the future. In the process of establishing your own business, it is possible to question yourself: Am I creating a startup or a small business?
When you have an answer to that question, you will be better equipped to define objectives, get financing, and develop a strategy for your company’s future.