If you are a part of the tech community, especially the Start Innovation Hub community, then you would have heard the word “startup” more times than you might care to remember. Is it a thing or just a chic way of referring to a business?
What makes a startup a startup, and what defines a small business? Rather than use too many lines that would sound downright pitchy to you (like I’m trying to sell you an old IBM PC in 2019), let’s get right to it – the definitions of a startup and a small business.
What a Startup is
Ideally, a startup is a venture with tech solutions built on a new (developing) replicable business model requiring constant high-end funding and a need for fast growth.
A startup is a temporary organization designed to search for a repeatable and scalable business model. – Steve Blank.
Now you know what a startup is, I’d tell you what a startup is not – A small Business.
What then is a Small Business?
A small business is an enterprise adopting already-established-and-tested business models for stable growth focused on building a great product, consistent customer base, and poised to drive profit.
Jared Hecht on Forbes referred to a small business as a “self-sustaining organization that generates revenue from the first day of opening.”
Knowing the definition of a startup and a small business, it starts to make some sense- the differences between them. So what’s next?!
The Strong Differences Between A Startup and A Small Business
Though conceptual, the differences between these two are perceived by many as subjective. The scope (intent), business models, funding, and expectations of these entities show great differences.
1. Business Model and Scope (Intent)
Innovation (that solves a problem that exists or replaces an outdated method) is mostly the idea that drives a startup. With the intent of disrupting the existing market, a startup adopts unconventional business models. These models allow it’s scalability in the fastest time.
However, the business model adopted by a startup sees a lot of iterations until it fits.
A small business, on the other hand, fits into the market with an already-made business plan. It focuses on providing the best products and services to a select market to build a stable customer base, cut costs, and increase revenue.
While both a startup founder and a small business owner may start with personal savings or loans as capital, funding affects a startup’s growth and scalability by factors. As a fact, every venture entirely relies on funding from VC’s (venture capitalists) and angel investors to scale. Every round of funding gives up part of the startup as equity. Every venture requires these 7 must-know insider tips for a successful pitch.
A small business might require funding at the initial stage, mostly through small business loans. Their models make them rather unfit for investment from VC’s.
Thousands of startup ventures emerge yearly, but most fail. Setting up a replicable business model in the shortest time is the goal of a startup. Explains why a startup would be interested in user number metrics (it shows how much of its target market is engaged as a factor of growth). For rounds of funding, these growth metrics get pitched to VC’s and angel investors.
Then, one of three things happens: The startup is driven off the market by a new venture with a better product, or it grows into a large company, or it is acquired(IPO).
A small business follows a more conservative approach to its growth, adopting stable growth over rapid growth by continuously making adjustments through feedbacks from its established customer base.
4. Risk Level
A startup is a high-risk venture. Because of the scope, which involves innovation (an entirely new product, service, or method), it is considered riskier than a small business.
Although a small business owner takes on a certain degree of risk, it is hardly similar to that shared by a venture founder. A small business most times have a pre-tested model that already fits into the market. It’s a different kind of risk.
Now that you know, you’re probably wondering to yourself. “What do I do now?”
Well, you should know what you’re getting into – what you want to build. Knowing early enough before you set out makes a difference. You know why you want to do it, how much you’re willing to give, and what to expect. Find out the 5 powerful things nobody (probably) told you as a startup.
Well, until next time! Let the innovation start with you.