When starting your company, one of the first steps is figuring out what type of business you would like to have. Startups and small businesses are two of the most common beginner businesses and two of the most confused.
While many people think that startups and small businesses are interchangeable terms, they each refer to a distinct type of organization. In regards to intent, scalability, and investment, they are incredibly different. Neither category refers to how long an organization has been operating, but rather what the business’ goals are.
Small Businesses
Small businesses are localized, small-scale organizations. These are typically the restaurant or store down the street started by someone in your community.
The goal of a small business is vastly different from the purpose of a startup. Small businesses solve a viable, regional problem, and they are intended to have an effective business model right from the start.
Once a small business opens, it usually generates revenue immediately, though it may not make a net profit for some time. Additionally, starting a small business require relatively low investment, typically using a loan or personal funds. It is rare for large investment groups to work with small businesses.
While a small business is a significant commitment for the founders, its overall goal is regionalized. Small businesses are meant to bring in enough profit for the company to sustain itself, compete in the local market, and have a small number of employees.
Small business owners want their organizations to last the rest of their lives and for generations to come. They are not temporary companies, nor are they meant to be bought by a larger organization.
If you are going to start a small business, make sure that your goal is to create a self-sustaining organization in a local market. You should be addressing a regional problem with a standard business model that is intended to bring in revenue from day one.
Startups
Startups are scalable businesses with much higher goals than small businesses. They are intended to be scalable organizations with wide-reaching effects for a national or global market. Uber, Airbnb, Stripe, and Tesla are examples of startups.
Investment groups and VCs prefer to invest in startups as opposed to small businesses. With wide-reaching implications for entire markets, startups typically have a more considerable impact and generate more money in the long run.
However, while they are more profitable in the long run, there is typically no profit for the first few years of a startup’s existence. Investors and founders will not see revenue for quite some time after starting their business.
Startup founders are looking to prove an innovative business model and execute it quickly for a lasting impact on their target market. Rather than function within a market, like a small business, startups intend to disrupt the market.
As a result, startups have to be scalable. They need to adapt to massive markets and rapid changes quickly, or they will not be able to achieve the goals of a startup.
Most startups are intended to turn into a major company or be bought out by a larger business. While small businesses stay in families for generations, a startup’s goal is to sell it for a profit or transform it into a massive company.
Which Type of Business is Right for You
If you have a business idea but do not know which type of organization you should start, look at your end goals and resources. You need to figure out what you want from your business and what tools you have to achieve your goals. The organization you start should match your business plan and provide the right outline for success.
Decide what type of market you want to enter. If you prefer to stay in your regional market, you should open a small business. If you intend to affect the global market, a startup is the better option.
Additionally, you should examine your resources. Small businesses require less investment and are typically funded by loans or personal funds. They usually start generating revenue immediately after they open. Startups need major investments, usually from investment groups or VCs, and will not see revenue for several years.
Ultimately, the type of organization you start depends upon your business idea and what you want from your company. Ensure that you start on the right foot by choosing the correct model for your business idea.
Final Thoughts
Small businesses solve local problems while startups solve global problems. While many conflate the two, they are not interchangeable. Each type of organization addresses a different market and has different end goals. To decide which kind of organization you should start, you first need to examine your goals and resources.
For additional info or to learn more about growing your small business go to www.theSBMag.com