5 differences between a startup and a small business
Being a budding entrepreneur, you should be aware of the difference between a startup and a small business before starting a new business.
When you hear the term “Startup”, the first thing that comes to your mind is firms like Zomato, Oyo, Uber, and so on. But what exactly is a startup?
Startups are young companies that are primarily designed to grow fast. While small businesses are focused more on reliable returns as opposed to consistent growth. They operate on a smaller scale and focus on long-term sustainability.
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While a startup may hope to be successful in the future, a small business strives to be successful from the beginning. They prefer gradual achievement that can be sustained over the big success that arrives all at once and then fades away.
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Here are some major differences between a startup and a small business:
Growth intent
One of the key differences between a startup and a small business is the growth intent behind the operations.
Startup founders are looking forward to making an impact and disrupting the market with their business idea. This may not happen overnight but they are looking to grow quickly.
A startup needs a massive market to grow in. They are frequently unprofitable in the beginning, or even for the first few years. They rely on a compelling vision of the result.
This ambition attracts investors who are eager to put their money where their mouth is in the hopes of making a significant profit on the road.
Whereas, a small business doesn’t need a big market to grow into. They just require a market and must be able to efficiently reach and service all of the people within that market. Instead of disrupting the market, they want to benefit from it.
A small business is a self-sustaining entity that earns money from the moment it opens its doors. They don't need a lot of money or time to start a successful business.
Business objective
Business objective and growth are intertwined, as being a startup founder, you’re hoping to disrupt the market by launching your business, while as a small business owner you’re looking forward to making a profit.
A tiny firm often generates a modest amount of revenue, operates in a local or regional market, and employs a small number of people.
A startup can also be temporary as they have an and product/vision on their mind and might switch to something else, once the goal is achieved.
Whereas a small business would continue to survive as long as its making a profit and employ a limited number of employees that would grow with it.
Funding
When you’re starting a small business or a startup, you would want to be aware of the finances. And the one thing that a startup and a small business have in common is that they both need funding. But who funds them?
Startups aim to secure major investments right from the start and they deal with investors like venture capitalists who are also looking to make massive investments.
On the other hand, small business owners don’t approach huge investors for funding. Their primary funding comes from business loans, family money, and personal savings or borrowing money off the market.
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Risk factor
For a startup, the most crucial thing is to innovate. Startups are intended to produce something new while also improving on what currently exists.
Startups are usually initiated because the creator has a new idea and wants to see it implemented. This often entails generating a whole new market for a product or service.
Even if that isn't the case, the product or service will be intended in some sense to be innovative and a great deal of luck and hard work would be necessary to make it work.
Whereas the majority of small business ideas aren’t innovating. They already have a well-established plan to follow. They like to stick to tried-and-true business practices and aren't particularly concerned about quick growth.
When it comes to starting a new business, there is always an amount of risk involved. However, there is undoubtedly a higher amount of risk associated with a startup. So, if you’re starting up a new business idea, you should be well-prepared to take risks as startups are way riskier than small businesses.
End goals
Another thing you should keep in mind is the exit strategy for your business. When you establish a small business, you almost certainly want to manage it for a long time—at least until you pass it on to a family member or sell it to an interested buyer when you retire.
As a result, until that moment comes, your only aim is to create a self-sustaining, long-lasting business. On the other hand, this isn't the case with startups.
Startups are meant to be temporary. If all goes according to plan, the startup will grow into a large corporation, resulting in an IPO (initial public offering). A buy-out from a larger corporation is another regular reality of a startup.
Whereas, you won't have to worry about developing an "exit plan" for your own small business until you've made it huge or changed your mind about owning it.
The argument is that you don't need an exit strategy at the outset of a typical firm. You'll be solely responsible for your company's fate, and you'll have to decide whether to operate it for the rest of your life or sell, combine, or list it on the stock exchange.
Conclusion
As you can see, the differences between startups and small enterprises are significantly more than most people realize. So, what's the big deal about the difference?
At the end of the day, the difference between a startup and a small business extends beyond our common understanding of these terms. It is, however, far more important for future entrepreneurs.
So, when you’re starting a new business, you need to think through what kind of a business it’s going to be, a startup or a small business, as making that difference would help you plan a course for your business and understand its objectives.
