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What is a startup: difference between a startup and a small business?

A startup venture is frequently misunderstood as a small new business.  In this blog, we will differentiate between startups vs. small businesses.

If you've ever worked in the IT business, or even if you're familiar with it, you've probably met entrepreneurs who have established and grown multiple startups.

But have you ever stopped to consider what is a startup? Is it merely a catchphrase for a fast-growing tech firm? Is there a real, significant difference between what qualifies as a startup and what qualifies as a small business?

It turns out that a startup and a small business are not the same things. Here, we go through the differences in detail, as well as why you should know them.

 

What is a startup?

A startup is an entrepreneur’s dream of providing society something it needs but hasn't built yet—at scale—whether they want to change the world or simply make their business vision a reality.

Whereas a small business is a self-sustaining entity that earns money from the moment it opens its doors. They don't need a lot of money or time to start a successful business.

 

Startup is Temporary

Steve Blank, a serial entrepreneur, and lecturer at business institutions such as Stanford, Berkeley, and Imperial College, came up with the most widely accepted definition of what is a startup? According to the definition – “A startup is temporary, and is created to search for a repeatable and scalable business model.” A firm, on the other hand, is “a permanent entity established to carry out a repeatable and scalable business model.” As a result, the difference is that startups are looking for an appealing business model, whereas enterprises already have one and are focused on successfully implementing it. 

 

Small Businesses vs. Startups

A small business is a self-sustaining entity that earns money from the moment it opens its doors. They don't need a lot of money or time to start a successful business. A tiny firm often generates a modest amount of revenue, operates in a local or regional market, and employs a small number of people. The SBA's size guidelines for industry determine the formal definition of a small business.

A startup looks to create an impact in the market with its disruptive technology and services while a small business simply looks to make revenue in a small market environment consistently.

 

A Startup is Funded Differently

Here we explain how a startup is funded differently from a small business.

A small business usually turns to acquire small loans through debt financing for funding at interest, thus, protecting their business ownership. On the other hand, startups partner with investors and financiers for funding which reduces their extent of business ownership. 

Startups are funded differently; here are some typical funding sources, along with a brief explanation of each:

 

• Individual Savings: 

Because you utilize your own money to start your firm and owe no one else in the process, this is the most enticing type of funding if you can manage.

 

• Friends and Family: 

You might ask your friends, family, or close associates to contribute to the funding of your company. The goal of this sort of finance is to assist a business in launching itself to the point where it may seek and receive other types of funding.

 

• Crowdfunding:

This entails taking modest amounts of funds from a large number of people, usually via the internet, to fund a business. 

 

• Angel Investors: 

Angel investors are rich individuals who offer capital in exchange for a piece of the company's ownership. 

 

• Venture Capital Investing: 

Venture capitalists are investors who put up a large sum of money in exchange for a piece of the firm's equity in exchange for a profit when the company goes public or is purchased by another company. 

 

• Bank Loans: 

Many startups use bank loans as a source of capital. Before applying for a bank loan, ensure you are well-informed on the numerous options available and the associated interest rates.

In this blog, we have explained what are startups and the basic difference between a startup vs. a small business. Although both the startup founder and the small business owner are entrepreneurs, the intent, primary function, and funding of their respective business models are vastly different and necessitate different types of strategy. For further information, please contact us.

 

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