If you’re new to the entrepreneurial community, you, like many others, might be curious about the question posed above. “But a startup and small business have the same framework: have an idea, build out said idea, and share with the public for growth and profit.”, you might be saying. However, that isn’t necessarily true. To start, the most important thing to know is the definition of each of these terms.
According to the online resource, Investopedia, a startup is: a company in its first stage of operations, founded by one or more entrepreneurs who want to develop a product or service for which they believe there is a demand, and typically start with high costs and limited revenue. Alternatively, Investopedia defines a small business (or small and mid-size enterprise) as: a business that maintains revenues, assets, or a number of employees below a certain threshold. This threshold varies by county, but certain size criteria must be met and occasionally the industry in which the company operates is taken into account as well.
The biggest defining characteristic separating startups and small businesses is the growth goal of each entity. Generally, startups aim to continuously grow and scale, with a common end goal for founders being to sell the company and make a market exit. In contrast, a small business may aim to maintain the size of their company over time, instead choosing to expand in the areas of services and products offered or customer reach. That being said, a low-level way to separate these two definitions is to think of it in terms of: startups aim to grow and sell, and small businesses aim to expand and maintain.
Of course, these distinctions aren’t applicable to all startups and small businesses. Some small businesses will end up growing, either through revenue growth or expansion, and some startups may end up reaching a point at which they choose to maintain as they move forward. Another distinction between the two that can be used to help you to identify each is the intent of the founder. Typically, small businesses develop out of identifying a gap within an existing market and aim to gain long-term community support and revenue on a local level. A startup, on the other hand, typically aims to disrupt the existing market, with an innovative idea or service through scale and impact, aiming for widespread adoption by consumers.
Some examples of small businesses can be found right in your own community: local grocers, barbershops, and thrift stores. These are businesses typically for the community, and founded by members of the community. Meanwhile, when people think of startups, the first few success stories to come to mind are the Ubers and the Facebooks of the world. However, startups aren’t necessarily always situated in the tech industry and don’t all achieve the level of visibility that these examples have.
So, are you interested in starting a small business or founding a startup? The answer lies within your long-term goals: do you want to fill a gap in your community and maintain
long-term ownership? Or do you want to bring an innovative idea forward into the public eye and scale your company? Three characteristics that these types of entities share is this: both will have their share of failures and successes, both are difficult to achieve without the support of your community and resources from organizations, and both are evidence of the entrepreneurial flame inside you.