Startups seem to be the hype in recent years. The words startup and entrepreneur are thrown around constantly. With success stories popping up every other day, many people are quitting their day job or fresh graduates trying to following their entrepreneurial dreams in pursuit of creating the next big thing.
The biggest difference between Startup and Small Business is their business goal. Small businesses are driven by profitability and stability, while startups are focused on top-end revenue and growth potential. The three-minute definition by Steve Blank simplifies the explanation.
DaPlan was founded in 2015. Our aim is to serve solopreneurs, small businesses and entrepreneurs who needed brand consultancy and design support. I was ultimately starting a small business because I was looking to provide a service and I would employ subcontractors or employees if the workload was more than I could handle.
Startups are different from traditional businesses primarily because they are designed to grow fast. This means that they have something they can sell to a very large market.
A startup usually does not limit its growth, and has aspirations to scale as big as possible. The aim is usually to gain so much influence that it can be deemed “disruptive” to the market.
It may take months or years before a startup makes a profit. They are primarily focused on building a product or service that people love, which results in tremendous user acquisition. As a startup, you will be creating something new and/or something better than what currently exists.
Small businesses, on the other hand are cafes, consultants, e-commerce etc. They are anyone who runs his/her own business. A small business operates within defined boundaries and focus on servicing a certain number of customers. Generally speaking, to operate a business, you don’t need a big market. You just need a market and you need to be able to reach and serve all of those within your market.
Small businesses primary concern is making a profit and is set up to generate revenues. How profitable the business is depends on how much money you want to draw from the business. Expansion plans will usually only be considered after profit is made.
This is important as it concerns your company’s approach towards growth, financing and exit.
As a startup, you are hoping to achieve rapid growth and expansion and will need additional capital to sustain the business, until you can generate your own revenue and become profitable. Many startups are initially self-funded, and move towards raising capital from angels, investors, and venture capitalists (VCs).
If you take investor funds, you will have an obligation to grow your company as your investors need to maximise their ROI. There is no time to drag and move slowly as you will have many people breathing down your neck.
Once investors are involved, they will be looking at the exit strategy where your investors get as big a return as possible. This is usually an IPO (or ICO in the Crypto world) or a sell-out where your company is sold to a larger company.
Also, with each series of funding, the startup founder’s equity is eroded, while ownership of the company diversifies. Eventually, a startup may cease to exist as an independent entity via a merger or acquisition, as it may be necessary to scale growth.
To a small business owner, however, relinquishing control would defeat the purpose of running their own business. Small business owners are not restricted by having to follow a set work methodology, and you are free to change your work processes if you wish. Your aspirations may be leaving your small business to the next generation, or selling it to a larger establishment.
Which one is for you?
Hopefully, by the time you are done reading this article, you will be able to identify the major differences between a startup and a small business and feel better equipped to make a decision about which path is best for you. It is simply depends on the direction you are heading.
DaPlan is a Singapore-based creative design agency specialising in brand building with a visual focused approach. We build awesome brands and help them get off the ground.