Difference between a startup and small business

If you haven’t founded a startup yourself, you more than likely know or have heard of someone that has. Today’s technology industry is filled with entrepreneurial ventures known as startups but what is the difference between them and a small business?

There is a common misconception that startups are simply smaller versions of large companies but that more defines a small business. Serial-entrepreneur Steve Blank defines a startup as a, “temporary organisation designed to search for a repeatable and scalable business model.” Key word being ‘temporary’.They should be short in which during the time that they exist they quickly implement their business model and raise enough funds to continue.

While small businesses already have some stability and are driven by profitability, startups focus more on growth potential and are more scalable. Blank also believes that wanting to ‘take over the universe’ is the first major distinction between scalable startups, technology clusters and small businesses. An excellent example of a startup that is on its way to taking over the universe is Canva. The company started in 2012 as a free, basic, graphic layout web app for professional and personal use. In 2015, Canva was valued at $US165 million ($AUD233 million).

Typically, funds are raised for a startup by pitching to venture capitals whereas small businesses can exist by raising money from one’s own savings or loans from friends or the bank. Of course starting any business is going to come with risks but startups take the cake in level of riskiness. Why? Finding the right product is hard combined with high chances you might end up wasting you own and investor’s money.

Essentially startups are focused on raising funds to implement profitable product with large growth opportunities. On the other hand, small businesses follow traditional business models and strong cash flows.