What is the Difference Between a Small Business Venture and a Startup?

There is a difference between a small business venture and a startup. In today’s article, we will discuss the exact definitions and why you need to know the difference. Startups are defined as organizations formed to search for a repeatable and scalable business model. Startup founders are not only searching to prove their business model and execute on it, but they are looking for a way to do so quickly and in a way that has a major impact on the market.

The Growth Intent

Startups are designed to grow fast, which makes them different than traditional businesses. By design, this means they have something they can sell to a very large market. For most businesses, this is not the case.

To operate a business, you do not need a big market. You just need a market, and you need to be able to reach and serve all those within your market.

Most startups are tech startups. Online businesses can reach a large market easier because people can buy from you whenever and wherever. The distinctive feature of most startups is that they are not constrained by these factors. To grow fast, you need to make something that you can sell to a very big market.

The Relationship with Funding

Startups seek financial investment differently than most small business operations. Startups tend to rely on capital that comes via angel investors or venture capital firms while small business operations may rely on loans and grants.

Those providing venture capital tend to have a more active role in whatever company they are backing. While a small business awarded a grant or loan may occasionally need to report back to their bank, a startup with angel backing will probably be getting a bit more help. They will be receiving advice from the investor.

Planning for the Exit Strategy

You will want to keep in mind your vision for your business. If you are pitching for venture capital funding without an exit strategy, you are unlikely to get it. Venture capitalists need an exit strategy as they need to maximize their ROI. You are probably going to want to ensure that exit plan comes in the form of a steady revenue stream that allows you to pay off investors, an IPO instead of a buy-out, or simply opt for a different strategy—your own funds, or loans and grants.

Is a Startup Business Right for You?

Here are some signs a startup might be the right type of business for you.

• You like to work hard then move on: you need staying power and work hard. Your startup might have a five-year lifespan it is up to you to make it work. If you have a problem with then think twice about starting any type of business.
• Your product or service has a large market: to grow fast you will need to “think big” to make something you can sell to a big market. This is why tech startups are the most popular type of startup – it is easy to reach millions on the internet no matter the location or when they do business.
• You want input and guidance from an expert: incubators and accelerators are great for those that have never started a business before or perhaps who have never started a startup company. If you are not sure about what to focus on or how to think about rapid growth, this would be a good place to get started.
• You are an innovator: many companies today have stopped innovating and spend millions instead acquiring startups that do it for them instead. This is why many startup founders launch with exit strategies that focus on a buy-out. If you are an innovator, a startup could be the right option for you.

The Bottom Line

When you are just beginning to execute on a business idea, it is important to think through what kind of entrepreneur you really are a startup or small business. Making the distinction early on will help define the path for your future business.