Praveen Kumar
Table of Contents
Are you still confused between these two terms, startup, and small business, how are they different, and are there any similarities between these two, today we will discuss their similarities and differences in detail.
The startup boom started decades ago and is still going on with no sign of deceleration because there is always something new in the market that people innovate and put to public use, while small businesses are ancient.
What is a Startup?
A startup is a company founded by one or more than one person by innovating something new in the market that solves a problem. A startup generally starts with limited resources and carries a high degree of risk. The initial goal of startups is generally to develop something new considering its market demand and generally aim to expand in the initial days.
Examples of some popular startups are Facebook, Google, YouTube, IBM, Zomato, Uber, and many more.
What is a Small Business?
Small Business is a privately owned company with a decent number of employees and generates lesser revenue compared to big corporations. They are generally based on traditional business models like buying or manufacturing something and selling it to consumers and wholesalers.
Small Businesses have the primary goal of making maximum profits from their products. Some examples of small businesses are coffee shops, grocery stores, and small-scale manufacturing.
Also Read: Why Small Business Should Stay Away From Amazon
Startup Vs Small Business
The main topic of discussion for us what are the actual differences between these two, I have explained point by point how both differ from one another from their business model to final goals.
1. Business Model
The business models of startups and small businesses are completely different Startup is based on an innovative idea and a product that solves a problem, while small businesses follow the traditional business model, buy low and sell high. Some modern-day examples of startups of Uber, Amazon, and small businesses are restaurants, clothing, and more.
2. Business Funding
Startups are generally started by a single person or group of persons with limited resources so they depend on investors to run their business further, while small companies are generally funded by a single person with his own money or bank.
Startups go through various funding rounds depending on their valuation sometimes startups continue to look for funding just to run the business properly like cashflow management and revenue.
Most of the startups have loss-making for several years even when their valuation is billion dollars they are making losses like Flipkart and AmazonIndia.
45+ Profitable Small Business Ideas
3. Growth and Expansion
The primary goals of the startups are to expand and acquire more and more customers and later monetize them to make money from them. They depend heavily on investors’ money for their growth and expansion.
In terms of growth Startups have an edge over small businesses, startups can reach a Billion dollar valuation in a matter of a few years while small businesses can take decades to become multi-million businesses. This is because of the startup’s insane growth potential.
Startups are generally overvalued so they can acquire more funding at a high valuation, in the initial stage there is not much on the papers to show the actual potential of the startups. Investors don’t usually focus on profit in the initial days they just pour money into the startups for their expansion.
4. Final Goals
The final stage of a Startup is either IPO or getting acquired by a startup, this usually happens when the startup reaches its saturation point and starts making profits, while if a loss-making startup files for IPO its share crashes the next day. We have already seen this in the case of the One97 communication IPO.
Small Businesses have simple goals like expanding and making their presence in more and more locations and generating more profits, generally, they open new locations from the profit generated from the existing business, there are very rare chances of investor funding in small businesses since they are owned by a single person they usually apply for bank loans to expand their business.
5. Risks and Reward
Startups carry high risk with them and usually, 90% of all startups fail in the first year of each industry. But founders are not at risk here because it’s the investor’s money that is lost when a startup fails.
In small businesses, the chances of failure are minimal compared to startups until or unless they are in a highly competitive industry like a restaurant or fast fashion. Small businesses are vulnerable to recessions and inflation when prices start inflating businesses start facing losses.
Why Investors Pour Their Money into Startups
Every day investors pour millions of dollars into new startup ventures despite knowing that only 2% of the startups succeed. Well, the answer is very simple, this is high risk-reward game means if one of the startups becomes successful it can make a lot of profits.
Sometimes when there is a startup boom many investors throw their cash blindly into startups like the dot-com bubble and when things are over investors lose their money and the founders spend that money on their luxurious lives.
Conclusion
Ultimately, if it is not making money, it will fail in no time so even startups innovate something new, and if they fail to generate revenue from that, they will not lose. After the final product is made it becomes the same as a business, you sell something and make money.
What is better Small Business or Startup?
Small Businesses and Startups both are good at their places, It depends on the person and their goals, small businesses are easy to start but hard to scale but startups are difficult in the initial stage but easy to scale because of investors’ money.
Small Business or Startup, Which is Risky?
Startups are riskier for both founders and investors because when the founder takes money from investors he has to follow the investor’s terms and conditions and sometimes it puts a lot of pressure on the founder.
