At face value, it may seem like the startups and small businesses are one and the same. However, some key differences arise when we look at how these two enterprises expand and grow over time. If we take a simple look at these two models, we can see some basic differences emerging off the bat.
- Startups tend to disrupt markets and move at a fast pace to drive top-line revenue rather than bottom-line profitability.
- Small businesses, on the other hand, look for long-term stability and growth in an established market.
“Startup” has become a buzzword thanks to massive enterprises getting their start by disrupting the status quo, but also with cultural tendencies within the business. It’s no surprise that startups have in many ways become the go-to term for new companies — but it’s not always that simple. Even essential aspects of growth, like securing a small business loan, can be drastically different between the two. We’re here to explore the key differences between a startup and a small business.
The Rise of Startups
The definitions of startups can be somewhat subjective, but there’s a general consensus surrounding its aim. While the disruptive model may play an important role in the beginning, startups do eventually want to craft a scalable operation that can be repeated.
Uber is a great example, as it not only disrupted the taxi and transportation market — but created a repeatable business model that other small businesses have taken advantage of. Similarly, Airbnb started a massive trend in hospitality that eventually made its way to cars, where eventually, companies like Turo emerged to create a car-sharing marketplace.
Startups are just as much a mindset as they are a business model. These entrepreneurial endeavors look to shake up the status quo, and while their short-term goals are rather agile — they do look to form a repeatable market.
Defining a small business is rather simple. It’s a privately-owned company, partnership, or sole proprietorship — but with less annual revenue and fewer employees than regular-sized businesses, corporations, or large enterprises.
While small businesses have far few personnel, management systems, HR representatives, and other operational fundamentals compared to larger corporations — they do have more than startups.
By the time a startup has “graduated” to a small business, they are no longer disrupting the market — as there will be other small businesses occupying the same marketplace.
Key Differences Between Small Businesses and Startups
Now that we’ve taken a brief look at the differences between startups and small businesses — let’s explore the divide a little deeper.
What’s the Trajectory?
Startups and small businesses all want to succeed, but how they decide to reach their goals is what’s important here. The growth intent significantly differs between these two business models — and can play an essential role in the overall trajectory.
As mentioned, startups look to disrupt marketplaces with a new business model or fresh idea, and maintaining a small team isn’t the end-goal. However, they do want to grow and expand at a rapid pace — which is why so many tech enterprises begin as humble startups with lofty goals.
On the other hand, small businesses aren’t looking for accelerated growth or disruption. These are for-profit, independently owned companies with competition within their established industries. While small businesses can be rather large compared to startups in size and revenue, they’re overshadowed by national competitors and massive enterprises in terms of scale and output.
So, in terms of growth and development, startups are geared toward agile growth. Small businesses are either scaling at a much more consistent pace or not looking to outgrow their current model at all.
Goals and Objectives
The overall goals and objectives for small businesses and startups can also be quite different — which should come as no surprise when examining their growth intent.
The disruptive and agile methodology that startups implement is tied directly to their objectives and overall goals. It’s looking to beat out its few competitors and grow at a rapid rate into a scalable operation.
Small businesses don’t need to disrupt marketplaces or grow rapidly. They’re looking at industries and markets that have attainable reach and success (or at least they should be). Running a small business is all about understanding the difference between profit and profitability to earn enough revenue. Success for small businesses is relative, but it’s more about reaching the desired goal than completely revamping a marketplace.
Think coffee shops, auto shops, beauty salons, or any other already established market — these are small businesses. Unless you’re revolutionizing the coffee industry with some sort of disruptive business model — it’s a small business and not a startup.
Loan and Financing Opportunities
Small businesses and startups have different levels of loan and financing options available to them — and they will want to take advantage of these opportunities in unique ways to succeed. Getting funding for a startup is tougher than for a small business, and much of this has to do with risk.
Startups might change business models, pivot potential customer bases, or completely revamp their entire structure multiple times to get it right. As you can imagine, this isn’t the most desirable environment for lenders. Startups will find much more success with equity financing than debt financing, as they don’t have enough time in business or credit history to put lender’s minds at ease. Investors who are looking to get on board with a startup at an ownership level will offer capital in exchange for some equity in the company. While this isn’t always desirable for every startup, it can be a great way to raise significant capital with the help of experienced investors.
Small businesses aren’t typically interested in handing out ownership in their company, which is why debt financing is a much more popular option. This can include:
- Term loans
- Business lines of credit
- SBA loans
- Asset-based financing
- Purchase order financing
- And more
Wrapping Up: Startups vs. Small Business
Startups and small businesses are both tried and tested methods for growth and success. It’s no secret that when it comes to uncertainty, startups are a far riskier endeavor as there’s not a blueprint or roadmap already set in stone. With such a disruptive model, it’s tough to know the future. Now, taking the road less traveled can have immense benefits and may be worth the risk — but there are no guarantees in life.
The funding options can be the real difference-maker, as finding fast business loans may be difficult for startups compared to small businesses. Instead, finding investors through equity financing routes could be the best option for startup entrepreneurs.
While small businesses and startups may seem like the same game with a different name on the surface, they do have considerable differences that can affect both opportunity and success.