A small business is a privately-held company with fewer than 500 employees. A startup is a new, emerging or recently established firm that has been created to pursue an opportunity in the marketplace and which typically must demonstrate potential profitability on its own merits
Entrepreneurs often ask what’s the difference between a small business venture and a startup. There are some major differences, especially in terms of capitalization but it can also be seen in other ways as well. Startup companies tend to have more risk than businesses that are established for decades.
A “small business” is a company that has fewer than 500 employees. A “startup” is a company with less than $1 million in annual revenue. Read more in detail here: what is the difference between a startup and a small business.
When I hear the phrase “startup,” my imagination conjures up images of a group of twenty-something web engineers gathered in a vintage office somewhere in the San Francisco Bay Area. They’re drinking beer in the middle of the day, joking about their awesome, cool culture, and talking about how they spent the weekend hanging out with their venture capitalist besties.
So, when I hear the term “startup” used in the context of a small business—say, a restaurant, café, hair salon, or dentistry practice—I cringe.
And I’m not completely incorrect.
The truth is, a tech company, or any sort of startup for that matter (it doesn’t have to be tech-focused), and a typical, new business endeavor are distinct for a variety of reasons, the most important of which is how they approach growth. 
The first major distinction is how these organizations approach expansion.
Startups are distinct from regular companies in that they are built to expand quickly. This suggests they have something they can offer to a very big market by design. This is not the situation for the majority of firms.
In general, a large market is not required to run a firm. All you need is a market and the ability to reach and service everyone in that market.
One of the reasons for this is that the majority of startups are in the technology sector. Because online enterprises transcend time and location, they can reach a larger audience. People can purchase from you or use your product whether you’re awake or asleep, and whether you’re in Cape Town or New York. Most startups are distinguished by the fact that they are not bound by these characteristics.
The following is a quote from the Small Business Association that best summarizes the situation:
“The term’startup’ in the business sector refers to a firm that is just getting off the ground. The word “startup” is also used to describe a firm that is often technology-oriented and has a strong potential for development. Startups have unique challenges, particularly in terms of funding. This is because investors want the maximum possible return on investment while balancing the risks involved.”
However, not every technological company has a significant market. If you offer Hungarian-language software to Hungarian schoolteachers, you already have a niche market.
“That’s the difference between Google and a barbershop,” says investor and angel entrepreneur Paul Graham. A barbershop isn’t going to scale.”
To expand quickly, you must create something that can be sold to a large market.
The connection with money is the second major distinction.
Apart from thinking about “growth” differently, startups seek financial financing in a different method than other small businesses. Small businesses may depend on loans and grants, whereas startups often rely on funding from angel investors or venture capital companies.
The intriguing thing about venture capital is that individuals that provide it tend to be more involved in the businesses they support. While a small firm receiving a grant or loan may be required to report to their bank on occasion, a startup with angel funding is likely to get greater assistance. They’ll get counsel from the investor (after all, the investor is the one taking the most risk), and if you’re young and inexperienced, a helping hand is usually the best thing you can get. This is particularly true for individuals or teams that participate in an accelerator or incubator program.
Difference #3: Making preparations for the “end,” or departure plan.
“Startups seeking angel or venture capital (VC) funding must have an exit plan because investors want it. “What provides them a return is the escape.” Tim Berry is a writer.
Another thing to bear in mind is your company’s goal. You’re unlikely to acquire VC money if you don’t have an exit plan in place.
Venture investors need an exit plan in order to optimize their return on investment. If you want to be operating the firm in 10 years, you’ll want to make sure the exit plan includes a continuous income stream that enables you to pay off investors, an IPO instead of a buy-out, or simply a new strategy—your own cash, or loans and grants, both private and governmental.
The construction of a “exit plan” is an issue you won’t encounter with your own firm, at least not until you’ve made it huge or changed your mind about owning it. The idea is that you don’t need an exit plan at the outset of a typical firm (not a startup). You’ll be solely responsible for the company’s future, and you’ll have to decide if you want to manage it for the rest of your life or sell, combine, or put it on the stock market.
Is starting a company the correct choice for you?
Given the rise of startup incubators and accelerators, the availability of funding for early-stage startups, and the fact that big companies around the world are buying startups rather than focusing on in-house innovation, you might want to consider starting a startup rather than a traditional business.
Here are some indicators that a startup is the ideal company for you:
1. You like putting in long hours and then moving on.
Are you familiar with the term “serial entrepreneur”? A startup may be a better option if you know you’ll become bored or want to see many of your ideas come to reality. Naturally, you’ll need stamina and the capacity to work your buttocks off! For all you know, your startup may only last five years, and it will be up to you to make it work and work quickly. If this is a concern for you, you should reconsider launching any form of company.
2. There is a large market for your goods or service.
You’ll need to “dream large” or, as angel investor Paul Graham puts it, “create something you can sell to a huge market” if you want to develop quickly. A really massive market, preferably in the millions.
This is one of the reasons why digital businesses are so popular—simple it’s to contact millions of people over the internet, regardless of where they reside or when they conduct business. This isn’t something your neighborhood coffeehouse can provide.
3. You’d want professional advice and direction.
As I previously said, incubators and accelerators are ideal for folks who have never established a company or, more specifically, a startup. This is a fantastic place to start if you’re not sure what to concentrate on or how to think about quick development. Hundreds of these groups are springing up around the nation, so I’m certain you’ll be able to locate one near you.
The difference between the two, according to Blair Giesen, serial entrepreneur and creator of Zambig.com:
“Incubators give support and counsel to companies in an unstructured program with no specified aim or timetable to help them develop and flourish.”
Accelerators give organized curricula in a short amount of time to enable a business quickly increase in size and value in order to prepare for a certain objective, usually raising capital.”
I suggest reading Paul Graham’s articles on startups if you want to learn more about the subject. He’s an excellent source of knowledge as the cofounder of Y-Combinator, an American seed fund accelerator.
4. You’re a trailblazer.
The concept is everything in the realm of startup enterprises, as is quick innovation. Many organizations have ceased inventing internally and instead invest millions, if not billions, of dollars in startups that do it for them. This is why many business entrepreneurs begin by focusing on a buyout as an exit strategy.
A startup may be the best choice for you if you’re an inventor.
From the wise, a message to the wise
“The issue with the internet startup mania isn’t that too many people are establishing businesses; it’s that too many people are abandoning them… Even if they become fantastically wealthy, when these individuals sell out, they are gypping themselves out of one of the most potentially satisfying experiences of their life. They may never know their beliefs or how to put their newfound prosperity in perspective if they don’t have it.” [Fortune, January 24, 2000] — Steve Jobs
How would you go about determining which form of company would be the best match for you? In the comments section below, I’d love to hear from you.
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“Is every new business a startup?” is a question that has been asked by many people. The difference between small business venture and a startup is the amount of risk involved in the project. A small business venture will have less risk than a startup. Reference: is every new business a startup.
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Frequently Asked Questions
Are startups same as small business?
A: This is a difficult question to answer. They are both types of business, but they have different functions and goals. A startup is usually small in size and has an idea or concept that it wants to develop into something bigger with hopes of turning profit eventually (though not always). Small businesses are typically run by one person who does everything from the accounting to ordering products for their company
Is venture and startup same?
A: No. A venture is when a business starts with an idea and has no existing product or service to offer in order to find investors.
What is a small business venture?
A: A small business venture is a project with limited scope that provides an opportunity to make money.
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