What is a Startup:
A company in the first stage of its operations, offering a product or service that is currently not offered elsewhere in the market, or that the founders believe they can offer in a superior manner to impact the current market.
A successful startup is no more or less of a ‘success’ than a successful small business. On the whole, small businesses employ vastly more people, pay more tax, and last longer than startups.
Despite the fact that hundreds of thousands of new startups are established every year, many people still don’t understand the difference between a startup and a small business—and trust me, the two are very different. To distinguish these two organizational entities, let’s take a deeper dive into the differences first.
What is a Small Business:
An independently owned and operated, organized for profit, and not dominant in its field. The intent of a small business is to simply be a small business owner, to be his or her own boss and take a place in the local market.
The biggest difference between these two enterprises is their purpose. Smaller industries are driven by profitability and sustainable long-term value whereas startup keeps focusing on initial revenue and growth potential.
|Small Business Enterprises Start-Up’s|
|Permanently Established Incredibly Risk|
|Successful Business Model In Search of a Unique & Profitable Business Model|
|Long term Potential for Success Temporary Nature|
|More Traditional methods, take less risk Extremely Innovative|
|Long Terms Potential for Success Non-Traditional Financial Methods and Strategy.|
The fundamental difference for a startup and small business is that Startup is related to a time period (which was recently launched) whereas a Small Business Enterprises (SME) is related to the measurement (such as the number of employees, revenue).
With more of a stable platform in place, small businesses are often designed to exist for many years to come. Their ownership might even be passed down from one generation to another, as long as they can sustain any economic or market struggles that arise over the course of time.
Small businesses tend to be more formally structured in terms of how they do business based on their past history or the history of other similar organizations. As such, they don’t take quite as many risks as their startup counterparts do. Small business owners like to rely on the hard work and persistence that have made achieving the American dream of self-employment a reality over time.
The technology field has long been known to include lots of startups since there are so many new and creative ideas out there on how to improve the world through technological development.
Funding for both Startup and SME:
While both a startup and small business will likely start with funding from the founder’s savings, friends and family, or a bank loan; if a startup is successful, it will receive additional series of funding from angel investors, venture capitalist, and eventually, an initial public offering (IPO). With each series of funding, the startup founder’s equity is eroded, while ownership of the company diversifies.
Eventually, a startup may cease to exist as an independent entity via a merger or acquisition. To a small business owner, relinquishing control would defeat the purpose of running their own business; however, for the startup it may be necessary to scale growth.
Although the startup founder and small business owner are both entrepreneurs; the intent, primary function, and funding of their respective business models are radically different.
Startups tend to be a lot riskier than their small business counterparts. Startups tend to involve far more dedication and investment (in every sense of the word) yet also have a higher chance of failure. And while small businesses also contain a risk element, there is one key factor that makes them less risky than startups; they tend to have proven business models to work off of and are not super focused on fast growth.
Startups are often starting something very new and run the risk of over-inflating too soon due to their fast growth.
This is another big difference between small businesses and startups. While startups are designed for fast and steady growth to secure more investors and rounds of funding for each stage of growth. This is not to say that small businesses don’t also focus on fast and steady growth, it’s just in a different way.
Small businesses will focus on creating a reliable income while keeping costs low. They may start off by offering everything from the scratch in a more traditional business model, whereas a startup, will slowly release products/services in stages on a more growth-focused model.
Generally speaking, small businesses are looking to create a sustainable business and stay in business. Startups are intended to be temporary and if all goes according to plan, it will turn into a massive company and hopefully experience its first IPO (initial public offering) or be bought out by a larger company.
So these are the difference between a Startup and Small Business Enterprises (SME). This is how both the business run and thinks while working for their development.
Importantly though, both small businesses and startups both need to prove their ability to excel at their relative business models in order for them to become candidates for funding regardless of their growth aspiration, risk or funding sources.
Wishing all the best – startups and small businesses a successful 2019.
If you are a newbie and have some questions- ask me in the comments…
If you’re an expert- share your secrets with me in the comments…
THANK YOU !!!