Startup vs. Small Business: What’s the Difference?
When people discuss business and entrepreneurs, it’s often assumed that both terms, “startup” and “small business,” mean the same thing. However, there are some key differences between the two, which should be taken into account when starting a new venture.
In this article, we’ll discuss these differences and explore why both serve different purposes and appeal to different types of entrepreneurs.
What Is a Startup?
A startup is an entrepreneurial venture that relies on a combination of innovative products or services, funding, and teams of professionals to bring their ideas to fruition. It involves a number of elements, with the overarching goal of developing and bringing to market a new product or service that can generate revenue.
Startups vary in size, with many sole proprietorships and small teams comprised of a few individuals working together. In some cases, however, startups can also employ hundreds or even thousands of people.
In terms of goals and approach, startups generally seek to disrupt existing markets and products or services, by creating products and services that offer customers something novel and revolutionary.
What Is a Small Business?
While the term “startup” is used to denote a new venture, “small business” is typically used to refer to an older, established business. A small business is often a family business, a business that has been around for years and is managed primarily by the owners and their families.
Unlike startups, which focus on disruption and innovation, small businesses often focus on providing efficient solutions to existing problems, such as providing more efficient customer service, better pricing, or improved product offerings. In some cases, small businesses may also seek to innovate in their own marketplace, but they often rely on their existing customer base or local community for support.
Small businesses often have few employees, and in many cases, employers are family members. These employees are often paid less than other organizations and have fewer rights, such as the right to form a union or collective bargaining agreement.
The Difference of Legality
One of the key differences between startups and small businesses is legal: for example, regulations and business licensing requirements.
Startups generally have fewer regulatory and licensing requirements than a small business, as they are not yet established. This allows a startup to operate with a lower initial investment and less paperwork, but it also means that they are at higher risk of failing due to lack of regulatory compliance.
On the other hand, small businesses often must obtain a business license and adhere to certain regulations, depending on the local jurisdiction. This means more paperwork, but it also ensures that the small business is more secure and compliant with regulations, thus reducing their risk.
What’s the Difference In Funding?
The primary difference between startups and small businesses is the type of funding they receive.
Startups typically depend on venture capital funding and angel investors to get their business off the ground. This type of funding is usually higher risk and produces a higher return, as the investor only recovers their money if the startup succeeds.
Small businesses, on the other hand, tend to have more secure and reliable sources of funding. These typically include bank loans, family loans, and lines of credit. While the risk is lower, small businesses may have to pay back the loan with interest.
Which One Is Right For You?
Whether you decide to start a startup or a small business will depend on your business goals, experience level, and risk tolerance. Startups offer the possibility of great returns, but they’re also riskier and require both intense work and a certain level of expertise to bring projects to fruition.
Small businesses, on the other hand, are less risky and more secure. This makes them attractive to novice entrepreneurs who may not have the expertise and experience to succeed in the startup world.
The decision of whether to start a startup or a small business will ultimately rest on the entrepreneur’s experience, risk tolerance, and business goals.
Startups and small businesses both serve the same purpose: to generate profits and create a successful venture. The primary difference is that startups focus on innovation and disruption, while small businesses focus on efficiency and providing solutions.
Startups involve a higher risk, but have the potential for much greater returns, making them attractive to experienced entrepreneurs and investors. Small businesses, conversely, involve less risk, thus appealing to novice entrepreneurs or those who prefer stability.
The decision of whether to pursue a startup or small business should ultimately depend on the entrepreneur’s experience, risk tolerance, and business goals. Both provide great opportunities for success, so the decision of which one to pursue should not be taken lightly.
