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People often confuse startups with small businesses. Sure, they sound similar, but the two have fundamentally different meanings and cannot be used interchangeably. They can sound the same because startups are new companies. But while they may start out small in size, their goals and intentions may ultimately separate them from true small businesses.
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What is a startup?
This is a new company that wants to quickly grow into a much bigger and much more profitable business. Many times a startup is looking to build quickly in a very short period of time. They are in the early stages, experimenting with different models and finding what works best for them to evolve as they chart their future. They find ways to raise money and attract backers to help them take their company to the next level. It’s almost like they’re rushing through the stages of growth, from a small enterprise with a few employees to a larger corporation in a few years.
Startups are businesses that believe their product or service is in high demand due to analytics and has high potential to disrupt the market. These companies hope that their product will be a quick success and become a permanent product. They often seek investors such as venture capitalists or raise money through crowdfunding to invest in the idea and launch the company as soon as possible. From the early stages, the mission, goals, strategy and research should be defined to anticipate the rapid changes that the company will undergo.
When people think of startups, many think of tech companies and Silicon Valley. While it’s true that many startups originate from this area of California, anyone with an idea can start a company in their home and grow it from there. Some of the biggest and best-known companies started as startups and are now publicly traded, including Apple, Microsoft, and more recently Instacart along with GoPuff.
However, a major disadvantage of startups is the high risk of failure. Many of them crash and burn within a few years of starting due to some reasons like lack of organization, inability to market properly or running out of investment capital. From the beginning, everything from business plans and models to goals and strategies should be clearly sorted. Long-term goals, equity and capital must be defined, key personnel hired, and financial support secured.
Related: How to start a business with no money
What is a small business?
That’s exactly what the name suggests. They are private companies, partnerships or sole traders. Being a small business is based on the amount of revenue and the number of employees. While the government considers companies with up to 1,500 employees to be small businesses, most have fewer than twenty. The Small Business Association (SBA) clearly defines what it takes to qualify as a small business.
[It is also worth noting that a recent survey, conducted by SurePayroll, of over 2000 taxpaying Americans found that a whopping 70% of those polled claimed they would skip a nearby chain and trek an average of eight additional miles to support their favorite local and independent business.]
A key element for small businesses is that they do not seek to dominate their market. They are companies that are independently owned and operated, most times selling to the local city while trying to maintain a steady income. There is much less risk of failure with a small business, making them sustainable in the long run.
A startup is looking to scale quickly and become a much larger company, while a small business is more focused on creating and maintaining a consistent and stable revenue stream. They’re not necessarily trying to expand in any way. The startup can eventually become a publicly traded company, raising money by selling stock and expanding however it sees fit. Whereas small businesses are started and remain private with the goal of sustaining themselves while generating profits for as long as possible. Many times small businesses are passed down from families and remain active for generations.
It’s also worth noting that a recent SurePayroll survey of over 2,000 American taxpayers found that a full 70% said they would skip a nearby chain and travel an average of eight extra miles to support their favorite local and independent business.
Both types of projects start with a person and an idea. Depending on how the individual in question decides to achieve the goal will determine the type of company. If they want to take their idea, shake up the industry, become a leader and are willing to take a risk? They will follow the way of launch. If they want to keep their business small and local, but big enough to be a good source of income while staying on the same level? Then a small business is the way to go.
Related: How to Start a Small Business Essential Guides