You’ve got a great idea that will appeal to the mass­es and have been think­ing of own­ing your own busi­ness for a while. You’ve even done the indus­try research home­work and start­ed a busi­ness plan. Your fam­i­ly and friends may or may not see the vision but you do. In fact, you already have a name for your busi­ness and mapped out the expens­es and costs. That’s just the begin­ning. 

In terms of mak­ing deci­sions on your busi­ness struc­ture, you’re stuck. There are so many avenues a small busi­ness own­er can take from form­ing an LLC, sole pro­pri­etor­ship, or form­ing a small cor­po­ra­tion. The oppor­tu­ni­ties are end­less but the chal­lenges are dis­tinct. The sto­ries of the col­lege dropout that even­tu­al­ly start­ed a mul­ti-mil­lion dol­lar busi­ness are well known. How­ev­er, that avenue is not for every­one.

When dis­cussing the busi­ness for­ma­tion, there is often con­fu­sion under­stand­ing the dif­fer­ence between a start­up and a small busi­ness. These terms are used to describe busi­ness goals which are very dif­fer­ent. Gen­er­al­ly, a start­up is focused on rev­enue and growth poten­tial, while small busi­ness­es are con­cerned with prof­itabil­i­ty and long term sta­bil­i­ty. So, which one are you build­ing? Let’s take a clos­er look at a start­up vs. small busi­ness in detail. 

What is a small business?

The U.S. Small Busi­ness Admin­is­tra­tion defines a small busi­ness in terms of “size stan­dards” by indus­try. Every busi­ness type from agri­cul­ture to non­prof­its is list­ed and defined. To check what your busi­ness falls under, you can access the SBA’s table of stan­dards

Inter­est­ing­ly, small busi­ness­es with few­er than 20 employ­ees make up 89.6% of all busi­ness­es in the U.S. Fur­ther­more, 23 mil­lion busi­ness­es have no employ­ees. Oth­er impor­tant qual­i­fiers are defined by the SBA includ­ing: 

  • Head­quar­tered in the U.S. 
  • Oper­ates pri­mar­i­ly in the U.S. 
  • For-prof­it busi­ness
  • Inde­pen­dent­ly owned & oper­at­ed
  • Minor­i­ty com­pa­ny with­in a larg­er com­pa­ny

These qual­i­fiers are pri­mar­i­ly to pro­tect and pro­mote small busi­ness­es in the U. S. larg­er econ­o­my. Doing so pro­vides assis­tance for small busi­ness own­ers to secure loans and con­tracts from the gov­ern­ment, as well as access to gen­er­al tools that allow them to com­pete with the big fish. 

What is a small business

What is a startup?

The term “start­up” brings up thoughts of wild­ly suc­cess­ful Face­book and Microsoft own­ers Mark Zucker­berg and Bill Gates. Both own­ers dropped out of col­lege with a rev­o­lu­tion­ary idea that turned into a mul­ti­mil­lion-dol­lar enter­prise in a mat­ter of a few short years. Still, tech­ni­cal­ly it is a busi­ness cre­at­ed to solve a spe­cif­ic prob­lem in which suc­cess is not guar­an­teed. In this type of busi­ness, the solu­tion is not obvi­ous so hav­ing a “start­up” is a mind­set and a will­ing­ness to forego sta­bil­i­ty for huge growth poten­tial. 

The term can also be used to define the begin­ning stages of a busi­ness. After a cer­tain amount of years, a busi­ness ceas­es to be a start­up and enters more advanced stages of growth and prof­itabil­i­ty. It’s the abil­i­ty to grow that is a major deter­min­ing fac­tor.

Startup vs. small business

Now that we’ve defined the main char­ac­ter­is­tics of a start­up and small busi­ness, let’s go into more detail about the dif­fer­ences between the two. Know­ing your end goal will help you choose your direc­tion. Depend­ing on your risk tol­er­ance, you may decide that nei­ther avenue is the right fit for you. Whichev­er direc­tion you choose, it’s best to be informed about the main dif­fer­ences between the two to make an informed deci­sion. 

Innovation 

Devel­op­ing an idea from scratch is very chal­leng­ing but is typ­i­cal of a start­up. That’s what makes the com­pa­ny unique and a pos­si­ble high growth busi­ness. The inno­va­tion can be any­thing from new tech­nol­o­gy to an improved busi­ness mod­el. Small busi­ness­es have plen­ty of blue­prints to ref­er­ence for suc­cess. 

Technology 

While tech­nol­o­gy is typ­i­cal­ly required to run a start­up, it is not so for a small busi­ness. Many wild­ly suc­cess­ful star­tups use tech­nol­o­gy as their prod­uct or ser­vice that dif­fer­en­ti­ates them from oth­er busi­ness­es in their indus­try. If not, they uti­lize tech­nol­o­gy to help their busi­ness grow rapid­ly. 

Financing 

This is one of the most dif­fi­cult aspects of cre­at­ing a busi­ness. Small busi­ness own­ers gen­er­al­ly rely on friends, fam­i­ly, bank loans, and investors. Many own­ers fund the busi­ness them­selves, start­ing a busi­ness as self-sus­tain­able and debt free. How­ev­er, this is not always pos­si­ble depend­ing on how much of your per­son­al sav­ings you are will­ing to risk. 

Although star­tups can be fund­ed in the same way, they are usu­al­ly fund­ed by crowd­fund­ing cam­paigns, investors, and ven­ture cap­i­tal­ists. Since you are look­ing to achieve explo­sive growth in a start­up, you will need addi­tion­al fund­ing and will expe­ri­ence increased pres­sure for a return on invest­ment. 

Profit

As a small busi­ness own­er, you expect to gen­er­ate rev­enue from the day you start. The amount of prof­it you bring in depends on how much you plan to pock­et and how much you are look­ing to expand. In con­trast, a start­up may not make a prof­it for months or even years. The focus is to build a great prod­uct that is loved by the mass­es with a huge finan­cial return. 

Scale

Small busi­ness­es have fixed growth bound­aries, inten­tion­al­ly lim­it­ing the busi­ness scale and hyper-focus­ing on a cer­tain cus­tomer base. Star­tups place no lim­its on growth and attempt to be as big as pos­si­ble. The idea is to be as dis­rup­tive as pos­si­ble. 

The business cycle

It’s no sur­prise that most busi­ness­es fail with­in the first 3 years. How­ev­er, did you know that 92% of star­tups fail? The odds are much bet­ter for small busi­ness­es at 32%. 

Moving on

Every busi­ness should begin with the end in mind by defin­ing an exit strat­e­gy. Hav­ing a sol­id idea about what you want to do with your busi­ness is part of the plan­ning process. Small busi­ness own­ers may choose to pass on the busi­ness to their chil­dren or fam­i­ly mem­bers. Sell­ing the com­pa­ny is usu­al­ly not at the top of the list but is an option. 

Star­tups, on the oth­er hand, are look­ing for a sig­nif­i­cant out­come that brings the most prof­it. Sell­ing the com­pa­ny to a larg­er busi­ness or an IPO is at the very top of the list of exit strate­gies that will gen­er­ate the most prof­it.  

What are your motives for developing a business?

Are you devel­op­ing the next big idea? Are you improv­ing on an exist­ing busi­ness mod­el? Are you look­ing for long term growth? Get­ting clar­i­ty around what it is you are look­ing to do in your busi­ness is cru­cial to deter­min­ing whether you have a small busi­ness or start­up. If your awe­some idea is rev­o­lu­tion­ary and meant to solve a world prob­lem, you may have a start­up. Your abil­i­ty to build a team around your great idea will be the key to your suc­cess and rapid growth. 

How­ev­er, if you are look­ing for a long term nest egg with restric­tive growth, you have a small busi­ness. Can one turn into the oth­er? While the answer is yes, it is a per­son­al deci­sion an own­er makes or an exter­nal trig­ger brought on by the mar­ket or cus­tomer demand. Where do you see your­self in the next 5 years? This ques­tion can help you make a defin­i­tive deci­sion on the direc­tion you’d like to take your busi­ness. 

How we can help your business?

What­ev­er you choose to do, we can help. The future of busi­ness mar­ket­ing is dig­i­tal and our inte­grat­ed mar­ket­ing experts have cut­ting edge knowl­edge of how to cap­i­tal­ize on these chang­ing trends. Our per­son­al­ized and tai­lored mar­ket­ing approach takes your busi­ness and indus­try into con­sid­er­a­tion when devel­op­ing effec­tive strate­gies to grow your vis­i­bil­i­ty and influ­ence. Tak­ing a mul­ti­fac­eted con­sult­ing per­spec­tive that includes brand­ing, web devel­op­ment, SEO devel­op­ment, and mul­ti­me­dia, among oth­ers ensures your busi­ness expands its reach. 

Are you ready or do you still have ques­tions? Give us a call today to see how we can help.