Small Business vs Startup: What is the Difference?

Startup seems to be the new buzzword in the world of entrepreneurship. Startups have brought all sorts of new technology to various industries and are being backed by Venture Capitalists and angel investors for millions of dollars. The disruption to markets such as fintech, biotech and countless others has been inspired by the growth of startups in recent years. 

What is a Startup?

However, some of us are still trying to wrap our heads around the idea of what a startup actually is. Isn’t a startup just a new, fancy way of saying a small business with scalability? Is there really a difference between the two, or is it just the millennials in Silicon Valley trying to put a new spin on what is ultimately a tried and tested entrepreneurial concept? 

Well, for those of us who really are befuddled at this relatively new concept of a startup, we have explored and identified the differences between a new startup and your traditional small business.

Growth

One of the main differences between a startup and a small business is the intent for growth. To put it simply, startups have the intent of growing to a point where they can achieve the goal of disrupting the market. On the other hand, small businesses are created purely with the purpose of serving a local market with a piece of entrepreneurship and therefore, typically won’t be aren’t concerned with growth on such a large scale that they’d disrupt the market they find themselves in.

“When we first set-up, we had the discussion about how we would set ourselves apart from the competition, and ultimately how we could scale up and grow to serve as many potential borrowers as possible”, commented Richard Allan, co-founder of fintech startup, Capital Bean. “We don’t just intend to serve a small community, we want to disrupt the market, and we feel that is what gives a startup its name”.

Scalability

As well as the growth intent and scalability of the startup versus the ‘old school’ small business, the founder of a startup is usually looking to disrupt the market with their scalable and impactful business model, grow as quickly as possible, beat out competitors, etc… This is often why startups don’t stay ‘startups’ for such a long period of time with some success. Founders are, more often than not, looking for investors to get on board to bring their product or service to international markets and become disruptors of said markets. 

On the other hand, a founder of a small business is not necessarily looking to disrupt the market or break into a new market; instead, a small business owner simply needs to have the desire to start their own business and find a market that they can reach effectively. As long as he or she can do so while earning revenue, they will successfully be able to run a small business.

Conclusion

Finally, although there are other points of difference between a startup and a small business, the last main point of interest that you should be aware of is funding. Though this is not set-in-stone and can vary depending on the size and interests of the business or startup, typically speaking, where a small business owner may turn to a bank for a ‘small business loan’, or to a family or friend who believes in their idea, a startup founder will typically look for equity financing.

With equity financing, startups can look for VCs or angel investors who are willing to offer large amounts of capital in exchange for equity, or ownership, in the company. Typically, these investors offer minimum amounts of capital in “rounds” and then with each series of funding, the startup gives up equity.

Small Business vs Startup: What is the Difference? was last updated November 26th, 2022 by Emma Grant