Differences Between Startup vs. Small Business
Many people who are related to a business or not, may believe that the term “startup” means that someone has just started a new business. While others believe there are no critical differences between small businesses and startups. Confusing these concepts is harmful not only for the reputation of an educated person but also for the wallet of a future entrepreneur.
If you are planning to start a business, it will be useful for you to study both of these areas for defining a tech strategy and reliable business plan that will meet your needs. First of all, let’s find out what qualifies as a startup and what is a small business in general.
What is a small business about
Small business focuses on the current market in which an entrepreneur must earn money from the start. It is a self-sustaining organization that does not need large investments and time to create a corporation. Conversely, small businesses have few employees and relatively little sales. This type of business does not seek to enter the local or regional market. Mostly it provides services and goods for everyday people’s needs.
How to define a startup
The notion that a startup is a just-started business contains some of the truth. Unfortunately, few people interpret this correctly. When a team of people offers the world a completely new, unique product, they can be considered a young startup company. Every startup has a CEO. He is responsible for generating or outsourcing business ideas, looking for those who are interested in a certain niche and ready to invest.
Startups are innovative proposals that have not yet been invented or implemented before. Such innovations can be both completely new products and services, and a significant improvement, optimization of existing ones.
Also read: 9 Tech Startups to Watch in 2021
Startup vs. Small Business: 5 Differences
Now you know the general information about these business types. So let’s highlight the key differences between a startup and a small business.
The main intention of the founders of the startup is to create an effective business model that will bypass all competitors in the market and break existing patterns. Small businesses don’t need a big market and don’t try to beat it up. Entrepreneurs of this level just need to develop an effective solution to be competitive with others like them.
However, a small business can earn money from the first day of launching a product as opposed to a startup. To achieve success, they need to do a lot of work in the first stages. It is required to find a source of initial investment, which in most cases is owned only by large investors and entrepreneurs.
The niche in which startups are most often born is IT technologies, artificial intelligence, space, genetic engineering, and other revolutionary industries. It’s hard to develop startups all alone, especially when you don’t have enough knowledge, so here you can find startup partners.
Startups are most often looking for outside investment and tech outsource to do their best for a perfect product. A small business needs less money, so some entrepreneurs may not seek investment, but earn money for the business on their own. Startups usually seek large investments right away. And they work with investors who also want to make big investments to end up making good money.
Another option for small business owners is to borrow money through small business programs from the government or banks. To do this, it is enough to have a reliable business plan, with payback calculations and approximate return date. Founders of startups rarely have this opportunity, as innovative ideas require huge investments, but cannot guarantee a return on investment in the short term.
Given that the goal of a startup is to surpass everyone in the current market, to take a leading position, you need to invest maximum resources – time, effort, and money – in such a business.
Plus, startups are heavily influenced by circumstances and competition. If someone succeeds with the same idea as before, you might lose everything. And there are no guarantees for payback periods and first profits. Therefore, startups have a high level of risk, but if the idea is implemented, then the success can be global.
Small businesses have much fewer prospects for achieving global success, and only 20% of small businesses fail in their first year, mostly because of ill-thought-out business plans. Small business owners enter an existing market, and all they have to do is play by the existing rules and be competitive. But the profit can be predicted by payback periods, the first profit is not long in coming, and only 1/5 of the entrepreneurs burn out.
Also read: 10 Best Ideas to Start Business from Home
Companies like Airbnb, Amazon, Uber, Netflix, Beyond Meat started as startups. This is a good example for such a business type when a company of 3 people can turn into a huge corporation. On the other hand, the goal of small businesses is to stay afloat and grow within their market. The only direction for small business growth may be in expansion, but in the existing market the competition in any niche is huge, so only startups who can offer something new that arouse interest can break into the leaders.
A startup can change business models several times to find the right one, but once that happens, the organization’s goal will move on to implementing that model. Either the startup will be bought by a larger company, or they will go to IPO. At this stage, the organization is no longer a startup but is instead a company. Therefore, the endpoint of a startup is far from the starting point. At the same time, a small business is like an apple that fell near an apple tree. Typically, small entrepreneurs don’t want more, which makes their endpoint different from a startup.
As a result, the difference between a startup and a small business is significant, especially for future entrepreneurs, who can get confused in the process of building a business and incur losses. Plus, having clear definitions and understanding will help you build an effective plan to achieve your business goals.