What is the difference between a startup vs small business? There are a handful of differences between the two types of businesses and a few important distinctions. When we think of startups we often think of Silicon Valley tech companies that are leading the way in innovation. When we think of small businesses we often think of small shops on town squares that are run and managed by close-knit families.
The reality is that most businesses don’t fit either of these stereotypes, but instead are somewhere in between. Here’s how to distinguish between a startup vs small business.
Startup vs Small Business – What’s the Difference?
Funding the business
The two types of companies differ in the way they are funded. Here’s a closer look at the difference between how a startup vs small business raises funds.
Startups are usually venture-backed companies that can’t exist without raising some cash from investors. Getting funding is difficult for startups, as there is a lot of competition in the VC realm. Pitches must be crafted, practiced, and perfected in order to get the attention of investment-ready VC firms and angel investors. Clear growth metrics are a big part of securing funding for startups, while that’s not usually so for small businesses.
Small businesses get their funding in different ways than startups. Rather than turning to VC firms and angel investors, small businesses rely on loans from the bank or friends and family to get their business off the ground. Since small businesses usually don’t plan to scale up in the same way as startups, additional rounds of funding often aren’t needed.
The way a startup vs small business grows (or plans to) is another major difference between the two types of companies. Below we’ll discuss how startups and small businesses focus on business growth differently.
Startups are built for fast, steady growth. It’s one of the main principles of running a successful startup. Unlike small businesses, who usually don’t participate in additional rounds of collecting funding or investments, startups have to continue picking up investors and funding for each stage of growth they plan to reach. Most startups start off servicing only a small part of the audience they eventually plan to reach and grow the business along the way, step by step.
On the other hand, small businesses may focus on growth, but not to the extent of startups. Small businesses are built with the principles of creating a reliable income for the owner and any employees they may have while keeping costs and expenses as low as possible. Unlike startups, who often do staged product or service “roll-outs” along the way, small businesses may start off offering their entire menu of services or products from the beginning. A traditional business model drives small businesses, while a growth-focused model drives startups.
Is there any type of business out there that is totally devoid of risk? Probably not, but between a startup vs small business, there are some clear differences in the amount of risk an owner or founder takes on.
Startups often get their start from a founder’s desire to find the right service, product, or platform to appeal to a given audience and turn a profit. Building any type of product or service from the ground up takes time, considerable investment, and a lot of focus and concentration. Sometimes, even after all that input, things don’t pan out. That’s why startups are far riskier than small businesses in the long run.
While small businesses do take on a considerable amount of risk just by being in business, they have one difference that makes their operation less risky than startups: The owners usually have proven business models to look at and imitate. Startups don’t have that same privilege much of the time. And because small businesses are not hyper-focused on growth, there’s less risk of over-inflating too soon and losing it all due to too-fast growth.