With the advent of technology and modernization, there has been a rapid rise in start-ups. The launch and exponential growth of businesses like Airbnb, Uber, Snapchat, etc. is one major reason behind the growing popularity of this word ‘start-up’. But have you ever wondered what exactly it is and how different it is from regular small businesses? Read on to know the differences between a start-up and a small business.
What is a start-up?
A start-up is a business that is present in its early stage of development and aims to provide a product or service that is new in the market. According to Steve Blank, a successful Silicon Valley entrepreneur, ‘A start-up is an organized form to search for a repeatable and scalable business model.’ Start-ups aim to provide products or services in a superior manner, in order to impact or disrupt the current market.
But remember that all start-ups are not the same. They can be classified in a few different ways:
- Scalable Start-ups: There are some start-ups that focus on quick growth. They are known as scalable start-ups. Facebook, Google, and Amazon are the perfect examples for this type of start-up. According to Steve Blank, a Silicon Valley entrepreneur, “such start-up takes an innovative idea and searches for a scalable and repeatable business model that will turn it into a high growth, profitable company.”
- Buyable Start-ups: They are specifically designed to create a new product or service and eventually sell it to another company. WhatsApp is the best example for such start-ups.
- Social entrepreneurship Start-ups: Such start-ups are not driven by financial growth. Rather they work toward social change. For, example, Toms shoe company
What is a small business?
A small business is a self-sustaining organization that aims at achieving stable profits instead of development as the main goal. It can be a company, corporation, or partnership with a small number of employees and low sales volume.
What are the differences between start-ups and small businesses?
There are a plethora of differences between a start-up and a small business. Let’s take a look:
Growth intent
One of the major differences between a start-up and a small business is growth intent. Start-up founders work with an aim to impact and disrupt the current market with their innovative business ideas. They are looking to grow quickly by making use of the technology. But that cannot happen overnight. Initial investments are required to deliver immediate results, often in the form of startup loans. That is why most of the start-ups are not profitable in their initial years.
Most of the start-ups are technology-driven to make their business scalable. On the contrary, small businesses do not need a large market. They just need a market where they can become profitable and easily reachable.
Funding methods
Financing is a major challenge faced by both small businesses and start-ups because both these ventures are risky for the financers. However, most of the start-ups look for big investments. Also, they search for investors who are also looking to make such large investments. There are some venture capitalists and angel investors who are ready to invest more money. Such investors typically invest a minimum of $1 million which are known as ‘rounds’. And in exchange, founders need to provide some equity in the company to the investors, this way the ownership structure gets diversified.
On the other hand, small business owners opt for debt financing through small business loans, or lines of credit, asset-based financing, etc. They look for traditional banks and online lenders who provide lesser amounts of business capital and charge interest for the funding. No matter small business owners have to pay more eventually for the capital, the integrity of their ownership remains untouched.
Risk factors
Most of the start-up founders aim to create something new, be it a product, service, or a whole new method of marketing. That is why the amount of effort is greater than traditional small businesses. This results in a higher risk. Thus, start-ups are riskier than small businesses.
Small businesses also have some sort of risk involved in it, but it is different as compared to start-ups. Most of the small businesses already have well-established business plans, they are not innovating. They work with tried and tested methods and take a longer time to succeed. But the risk element is lesser as compared to start-ups.
Innovations
Innovation is one of the major differences between start-ups and small businesses. Most of the start-ups aim to create innovative products that are not yet launched in the market. They also tend to improve what already exists. Small businesses don’t focus on uniqueness. They focus on generating consistent revenue while keeping minimum costs.
Profit
A start-up could take years to earn profit as its target is to create a product that will be liked by the customers. If this aim gets achieved, a start-up can make millions and millions of profits. On the other hand, small businesses focus on getting consistent earnings right from the day one. The main profit of small businesses depends on the appetite of the CEO of the company.
Different end objectives
The end goal of a business also determines whether it is a start-up or a small business. No matter every small business owner has a different goal but most small business owners strive to create a self-sustaining and long-lasting business. On the other hand, start-ups can turn out to be temporary. If things go in the right direction, a start-up can turn out to be a big company experiencing an IPO (initial public offering). Another thing that can happen with a start-up is a buy-out from a larger company.
Technology
Another distinguishing factor between a start-up and a small business is technology. Most of the time, technology acts as the main product of start-ups. Start-ups try using new technologies every now and then in order to get fast growth and scale-up. On the other hand, no special technology is required in a small business. Basic technology in the field of marketing, accounting, etc. can help a small business to achieve business goals.
Which type of business is right for you?
If you want to figure out how you will execute your business idea, you need to be aware of whether you are a start-up founder or a small-business owner. It is essential to make the distinction so that the path is made smooth for your future business. This way you will be able to set up clear growth expectations, find out your funding methods, create a business plan, and define what exactly success means to you.
Key Takeaways
- A start-up is a business that is present in its early stage of development and aims to provide a product or service that is new in the market
- A small business is a self-sustaining organization that aims at achieving stable profits instead of development as the main goal
- No matter they look similar, but plethora of differences are there between a start-up and a small business
- One of the major differences between a start-up and a small business is growth intent
- Funding methods are also different for start-ups and small businesses-start-ups look for big investors while small businesses prefer debt financing
- Start-ups are riskier than small businesses
- Most of the start-ups aim to create innovative products that are new to the market while small businesses don’t focus on uniqueness
- A start-up could take years to earn profit as its target is to create a product that will be liked by the customers while small businesses focus on getting consistent revenue, right from day one
- Most small business owners strive to create a self-sustaining and long-lasting business. On the other hand, start-ups are temporary, they can even turn out to be a big company if things go in the right direction
- Start-ups try using new technologies every now and then in order to get fast growth and scale-up. On the other hand, no special technology is required in a small business
