THE DIFFERENCE BETWEEN START-UPS AND SMALL BUSINESSES
The word “start-up” is one that is being used a lot in today’s business world. A lot of us talk about building start-ups when what we mean is building small businesses. As a matter of fact, most people use both terms interchangeably without realizing that there are differences that set both entities apart.
Being knowledgeable about the differences between these two terms will help you figure out what you are actually set out to do before you even start. Let’s take a closer look at the difference between these two so as not to get them mixed up and to know what exactly it is you are aiming for, whether a small business or a start-up.
DIFFERENCE #1 – GROWTH RATE AND EXPECTATIONS
Start-ups – The first thing you need to know is that start-ups are all about super-fast growth. Unlike small businesses, start-ups focus on scaling the business and growing exponentially within a short period of time. Most start-up businesses are tech driven (to be automated) and as such, usually, have a faster growth rate.
Small Businesses – The growth of a small business is comparatively more limited. Factors that contribute to the slow growth of a small business includes the service or product itself (they are usually limited to a particular target market) and also the geographic area. Also, as most small businesses do not make tech a priority, they cannot grow via automation like a start-up.
DIFFERENCE #2 – MODE OF FINANCING
Start-ups – In order to accelerate their growth, most start-ups go in search of external funding. This basically means that start-ups can decide to be funded until they become profitable or able to generate their own revenue. Therefore, most start-ups have investors diving in during the initial stage. There are numerous avenues where start-ups can raise funds for their businesses. Some of these include venture capitalists, investors, and “angels” (a wealthy individual who will provide the capital in exchange for ownership equity or convertible debt). When start-ups are looking for equity funding (giving out shares or options in the business), they may have to think it through as they’ll need to consider the impact the money of an investor will make on their business. And let’s not forget how risky this is -it might take years before the business generates a profit.
Small Businesses – Most times, small business come into being without the funds of an investor. They can be financed from friends, family, bank loan, or if the owner has the capacity, self-funded. Unlike start-ups, small businesses prioritise on making regular income with low risks.
DIFFERENCE #3 – TYPE OF IDEA
Start-ups – The nature of a start-up is quite different from that of a small business. Start-ups are quite disruptive. This simply means that they tend to operate on or produce services and products that do not exist yet, or products and services that are causing a drastic change to the delivery of a particular service or good in the industry.
Small Businesses – Most times, small businesses deal with traditional goods and services. For instance, grocery stores, hairdressers, travel agents, etc.