The definition between a startup and small business venture is easily identifiable based on their business model and target market. Startups are typically technology-focused or online-based businesses that can easily reach much larger markets. Meanwhile, small business ventures don’t need large markets to operate—to some degree. As the name implies, all it needs is just a market and strategy to reach potential customers within that market to efficiently offer their products or services.
So, what are the contrasts between these two?
Market Growth Intent
The startup founder’s goal is to take over the target market with their impactful and disruptive business model designed for rapid growth from the get-go. Despite that, it’s not going to happen overnight for them. Initial investments are needed, and those investments won’t immediately return results. It may take them a year or more for some startups before getting results for their investors and the business itself. Unluckily, some of which won’t even reach a state of profitability.
On the other hand, traditional small business investments rely on a sustained constant market which doesn’t necessarily have to be large compared to a startup target market. A small but stable group of customers are necessary for its growth.
However, a big difference in their market growth is scale. Take, for example, Google and a barbershop. A barbershop doesn’t scale, unlike the business model of Google. For a business to grow rapidly, a product or service must be made where it can be sold to a large market.
Funding Approach
Whatever the differences between startups and small business ventures, funding is imperative for both. Finding investors—investment money—who share the same vision as theirs is easier said than done. Investors, on the other hand, would often quantify the risk and reward aspect of the business. They don’t just dive right in, so to speak. Value outweighing the risk must be presented to the investors if funding is to be achieved by both fund seekers.
With startups, venture capitalists and private investors put up a certain amount, which typically is around $1 million in what’s called funding “rounds.” In return, investors will get equity from the company in exchange for their
investment money—diversifying the structure of ownership of the company.
On the contrary, small business owners typically find their funding in debt financing through small business loans. However, traditional banks and lending institutions offer a smaller amount of funding compared to startup investors. In exchange for the fund provided by the banks or lending organization, interest will be added to the principal amount borrowed. While small business owners pay a greater amount for the investment money of the business compared to startups, in the end, their ownership remains completely intact.
In a more straightforward comparison concerning funding, startups partner with their financiers while small business ventures treat their financing in a transactional manner.
End Goal Objective
Typically, the goal of small business owners is to remain in business or expand some more. Their main objective is to create a stable, sustaining, and long-lasting market.
On the contrary, however, startups are generally temporary—in a sense. There are two scenarios for a startup business end result. Firstly, if everything goes perfectly well within the company and turns out to be successful, they’ll end up offering stocks to the public or the Initial Public Offering (IPO). The other one is the buyout. Larger companies with extensive financial resources will take over the company and buy out the whole ownership—investment planning is really necessary for this one.
Which Business Model Is For You?
Before you execute a business idea, it’s essential to think about what kind of an entrepreneur you really are—a startup or small business entrepreneur. Making the distinction early on will pave the path of your future business for a lot of reasons, including investments, partnership, expectations, and lastly, your definition of success.
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