By: Julie Marie Bedas
Startup or Small Business? How to Know the Difference
Startups and small businesses are often confused to be synonymous. But, apart from the fact that both types are small in scale, the similarity ends there. For the former, small is just a starting point, but for the latter it is the end point.
A startup can be a small business, but a small business can never be a startup. The major difference between the two lies on each company type’s main objectives. For startups, the primary goal is to achieve growth potential and high-end revenue, while for small businesses the main objective is immediate profit and stable long-term value. For this reason, a startup can still be a small business as it can garner immediate profit and can be stable and long-term depending on the product and the founder. However, a small business has no growth potential and the revenue is consistent throughout since the product being marketed already exists and the demand is predictable.
One misconception about startups is that they are all technology-based. However, a company can have nothing to do with technology and still be considered a startup based on its growth and innovation. The reason why most startups are tech-based is because of their goal to achieve growth potential, which is why they turn to technology to reach a bigger market faster.
How to Differentiate Between a Startup and a Small Business
Innovation vs Existing
As mentioned above, the products of a startup is based on innovation. What Uber, Airbnb, Dropbox, and all the other most valuable startups out there have in common is that they give something fresh and unique in a society where usually the only difference between various products are in the ways the companies market them. A small business markets an already existing product under a different brand.
In five years time, a startup will have achieved billion dollar valuation or will have been bought by a much bigger corporation. On the other hand, a small business will stay as is even years after its first inauguration. As much as a startup can have great success in the market, it also has more potential to fail than a small business because a new product can’t always secure its use in the society. That’s why it’s important for startups to have an exit strategy.
Whereas a small business markets products that may have been used by people for centuries, a startup puts a modern twist on them. Example: A small business markets a bag, a startup markets a bag with built-in wifi and expandable space.
In terms of funding, startups usually search for venture capitalists to fund their projects although it is not always necessary since bootstrapping can also be applied. However, small businesses are almost always family-funded. Usually for the latter you come up with the money by dipping into your personal funds or from loans you made to friends or banks.
Passion vs Profit
Another major difference between a startup and a small business is the purpose they serve for the founder. A startup is built on passion. It might earn profit, but the cash is just a bonus for the founder whose main goal is to see something grow despite everyone thinking that he might have gone crazy with an idea is destined to fail. Otherwise, cash is not enough incentive to push through with your unique ideas. A small business’ number one priority is profit and it stops at that.