The terms "startup" and "small business" are often used interchangeably, but they actually refer to two very different types of companies - both types of businesses share similarities, yet there are distinct differences between them. At Strategic Collisions, we mentor entrepreneurs from both, so let’s dive a little deeper.
Definition and Examples:
A startup is a newly founded company with a business model that aims to solve a unique problem or meet a specific need in the market. Startups typically have high growth potential, with a business plan that aims to scale rapidly and disrupt an industry. Examples of successful startups include Airbnb, Uber, and Dropbox.
A small business, on the other hand, is a company that typically has fewer than 500 employees and is often independently owned and operated. Small businesses typically serve a local market and have limited growth potential due to limited infrastructure and capital. Examples of small businesses include independent restaurants, retail stores, and local service providers like plumbers or electricians.
Criteria for Determining the Difference
Growth Potential: One of the main differences between startups and small businesses is their growth potential. A startup typically has a high growth potential, while a small business has limited growth potential. To determine which category your business falls under, ask yourself:
Is your business model designed for rapid growth and scale?
Are you planning to expand to new markets or geographies?
2. Innovation: Startups often innovate and disrupt traditional industries, while small businesses typically operate within established markets. To determine which category your business falls under, ask yourself:
Does your business model solve a unique problem or meet a specific need in the market?
Are you introducing new products or services that disrupt established industries?
3. Funding: Startups often require significant funding to support their growth plans, while small businesses are typically self-funded or rely on traditional financing methods such as bank loans. To determine which category your business falls under, ask yourself:
Have you raised significant funding from angel investors or venture capitalists?
Are you self-funding your business, or relying on traditional financing methods like bank loans or personal savings?
4. Scalability: Startups often have a scalable business model that allows them to quickly grow their customer base and revenue, while small businesses typically have a limited customer base and revenue potential. To determine which category your business falls under, ask yourself:
Can your business easily scale to accommodate a rapidly growing customer base?
Are you able to expand your operations to meet the demands of new markets or geographies?
5. Risk: Startups often have a higher level of risk than small businesses, as they are often operating in unproven markets or industries. To determine which category your business falls under, ask yourself:
Are you operating in an established market or an unproven market?
Is your business model dependent on a single product or service, or do you have a diversified portfolio?
By considering these criteria and asking yourself these questions, you can determine whether your business is a startup or a small business. While both types of companies have their own unique challenges and opportunities, understanding the differences between them can help you make informed decisions about your business strategy and goals.
If you determine that you are a startup, here are some things that small business owners can do to move towards a startup mindset:
6. Identify and focus on a problem: Startups are typically founded to solve a problem. As a small business owner, you may already be solving a problem, but to adopt a startup mindset, you need to identify and focus on a specific problem that you want to solve. This means researching your target market and identifying their pain points.
7. Experiment and iterate: Startups are known for their ability to experiment and iterate quickly. They try different approaches and learn from their failures. As a small business owner, you can adopt this mindset by testing new marketing channels, product features, and business models. Use customer feedback to iterate and improve your offerings.
8. Think big and be agile: Startups are often focused on disrupting industries and creating new markets. To move towards a startup mindset, you need to think big and be agile. This means being open to new ideas, taking calculated risks, and being willing to pivot if something isn't working.
9. Embrace technology: Technology is a key driver of innovation and growth for startups. As a small business owner, you can embrace technology to automate processes, streamline operations, and create new products and services. This can help you scale your business and compete with larger players in your industry.
Overall, SCI stands behind the belief that the key to adopting a startup mindset is to be proactive, experimental, and open to new ideas. By focusing on solving a specific problem, experimenting and iterating, thinking big and being agile, and embracing technology, you can move towards a startup mindset and take your small business to the next level.
