You might wonder if there’s a difference – there is, and it’s an important one.
You’re starting your new company and visiting a few networking events when someone asks you whether you’re a small business or a start-up. What’s your answer?
You might never have thought about it, assuming that they were just different ways of saying the same thing. But they are fundamentally different.
The main difference is in your outlook – where do you see the business in 5, 10 or 20 years’ time? A small business will probably remain a small business throughout its lifespan, hitting a peak size and staying that way.
A start-up will have a growth plan that sees it go from being a small business to a larger one over a set period of years, with an eventual point where it is sold off or goes bust.
A lot of it comes down to the idea behind the company. A small business will fit into the current economy, while a start-up looks to disrupt the economy. Companies like AirBnB, Facebook and Uber all succeeded as they provided not just their own business plan but their own little economy.
Speed of growth
The speed at which you intend to grow also plays a large part. Small businesses tend to take the slow and steady model, establishing themselves and only expending or growing when they’re financially able.
A start-up will grow at a much faster pace, often before the company is ready. This is because their business model will have predicted exactly how their product fits into the market. If the initial sales aren’t great, they argue it’s just a matter of time. This pace of growth is why many start-ups fail, but also why some of them become seemingly overnight success stories.
A small business also tends to stay local, employing people from the local area and essentially recycling money around the local economy. A start up aims to go national (or even international) adding to the local economy.
Money and ownership
Investors tend to prefer start-ups as they can provide a quick return on investment due to the speed of their growth, while small businesses aim to provide a profitable yet stable company.
But, there’s an argument that small businesses are too focussed on financial stability. Start-ups look beyond money and are more focussed on product. Think of companies like Facebook, which struggled to make a profit for a long period, but was used by millions. When you take money out of the equation, it makes it a lot easier for start-ups to take risks.
As they both grow, ownership models will start to change. A successful start-up will receive more and more outside investment and aims to go public with its shares, meaning the founders often don’t own much of the company (but can be very wealthy). A small business, on the other hand, will have the same head for a number of years.
Posted by The Secret Businessman