What is the Difference Between Startup and Business?

What is the difference between Startup and business?  Many entrepreneurs do not understand the different between them. Last Sunday one of my friends from IIT Kharagpur came to meet me after a long time. While sharing about how the life moved in last few year, he told me that he has left his rapidly-growing, profitable small parental business to launch a tech startup.

I  asked him, “What is his goal in life for next five years?” He answered, “100 million rupees”. I am sure in his mind he must have inspiration from people who made eight-figure companies through startups. If you ask me that’s a dreadful goal. Instead of focusing on great products/service and huge customer bases, he focused on earning money, which is not a startup mentality.

Lets us understand the important difference between Startup and business

Objective

The biggest difference between these two is in their top objectives. Businesses are driven by bottom lines or profitability and stable long-standing value, while startups are focused on top-line/revenue and growth potential.

Also read :  Tracking the health of your startup through Balanced Scorecard

Business Model

A business model based on innovative idea, which is repeatable and scalable, is a Startup. On the other hand, a business works on a well-established business model. It’s running a business model which is not new in the market.  For example, that would be opening a hotel or selling books or even opening up a lemonade stand. It’s a business model that’s proven to work. A startup basically works on a idea. One need to think out of the box and work on the idea, on which earlier less or no work is done.

Intent

The Intent of the startup founder is to disrupt the prevailing market with a scalable and impact-full business model; whereas the intent of the business owner is to be your own boss and secure a place in the local market while having a decent profitability.

Challenges

Startups have more challenges than small businesses due to scalability, geographical, funding and business model differences. Risk-reward ratios also differ largely. Startups has very high risk-rewards ratio than business. Business has known product/service, known customer whereas startup has new product/service and unknown customers.  Startups generate better employment than business.

Innovative Idea

One of the most fundamental differences between a startup and a business is product or service innovation. Startups ideas work on solving day to day problems. Startup does things differently. Startup may do the same old things in a new manner, take an example of Ola Cabs, booking taxi was always what we did but OLA offered us a completely new way of doing it.  Startups should have competitive advantage while at the same time offering more value to customer. Customer must feel an additional value for money so that they switch.

Small businesses do not claim to be unique. Small business is comparable to a lot of other firms.

Technology

Startups use the technology and look at how  the sales can occur online, while using machine learning to sell customized solutions based on demographics, preferences of the customer. Whereas in business a owner understand customer needs through direct interactions. The boost in sales is done through trust, goodwill & word-of-mouth.

Growth plans

Another big difference between a startup and a small business is the company’s plans for growth. Generally, startup founders want to scale their businesses as quickly as possible. These companies need significant capital to reach the next level, and growth is critical for attracting investor dollars. In fact some startups temporarily set aside profitability in favor of growth, which allows them to capture a bigger market share. Startups can do this because their investors aren’t repaid in the same way bank loans are.

On the other hand, small businesses seek growth by creating reliable, long-term income streams. They often keep costs and expenses low because their funding is limited and loans must be repaid with capital. And in terms of employees, small business owners typically maintain a small-sized team indefinitely.

Funding

Small business establishments are set out generally through own money and capital sometimes also arranged through friends and family members. Whereas in startups funding is done through pitching the brilliant idea to other sources like venture capitalists and angel investors. The business requires less or more investment depending on size and type of the business.  The startups require huge money to grow the business and ensure scalability.

The startup can offer investors (and employees) something the small business might not be able to: equity in the company. Typically, founders offer equity to investors in rounds (seed funding, then Series A, B, C, etc.)—each with specific goals, terms, and pricing. Later on, the founder may decide to raise capital from the public via initial public offering (IPO), sell the startup, or merge it with another company to scale growth and capital.

Life-cycle

Another big difference is of life cycle. What do you feel ? For how long small business run? And how long the Startups?

Well if I talk about small business, 25% of  small enterprises are close in the first three years. Well this number is not bad comparing to startups. In Startups 92% of startups are shut down during the first  year itself. You may surprise but that is reality. The high closure has many reasons which include risk reward ratio, unavailability of funds. I have written a separate full post on startup founders burnout, you may like to read that.

Over to you now, I have shared the major difference which I have found between the startup and business. What differences do you see ? Please share in comment section your views and experiences.

If you have liked this article, please share it with your friends at your favorite social networks.