To state the differences between a startup and a small business, understand the meaning of the terms. What is a startup and what is a business?
What is a Startup?
A startup according to Investopedia is:
a young company founded by one or more entrepreneurs to develop a unique product or service and bring it to market. By its nature, the typical startup tends to be a shoestring operation, with initial funding from the founders or their friends and families.Investopedia
Neil Blumenthal, co-founder, and co-CEO of Warby Parker defined a startup as:
a company working to solve a problem where the solution is not obvious and success is not guaranteed.”Neil Blumenthal
A five-year-old company can still be a startup. Startups often use technology to solve problems.
What is a Small Business?
A small business is defined as:
A privately owned corporation, partnership, or sole proprietorship that has fewer employees and less annual revenue than a corporation or regular-sized business.asq.org
A small business has less than 1,000 employees. Small businesses contribute to the economy. Most small businesses create employment for citizens and also provide products and services to their customers.
Small businesses need a growth plan, funding, legal guidance, and access to the right technology solutions to succeed.
The Differences between a Startup and A Small Business
The differences between these two will be examined in growth, funding, and exit strategy.
Growth: Startups tend to grow fast. They have a solution to sell to a vast market but this is not the case for most businesses. A business does not need a large market to serve. All it needs is just a portion of the market it can reach and serve all of them within it.
Most startups are tech startups because they operate majorly online. It is easier for them to reach a large market because a large percentage of individuals spend their time online. Regardless of the country they reside in, they have access to online content and platforms.
Funding: Startups search for financial investment to operate. They depend on the capital that comes from investors (angel investors) or venture capital firms. For small businesses, they seek loans and grants to operate.
Startups have more assistance from their investors in terms of advice and guidance while a small business needs to constantly give feedback to the bank that issued out the loan.
Exit Strategy: A startup launch with the aim to sell-out within five years. They tend to disrupt the market and industries by innovating an acceptable idea. An idea to solve a problem that is beneficial to society. A startup will grow big and wait for a large company to buy that idea – hence, they have an exit strategy.
This is not true for a small business. A small business is okay with making enough revenue to enable the founders to live comfortably. A small business is not looking for a buy-out, but continuity.
How to know you will operate a startup.
- You have a product or service for a large market. That means you think big.
- You are an innovator. There are great ideas you have that can solve problems.
- When you like guidance and support from experts. You will find yourself seeking incubation and acceleration programs.