Startup or Small Business? The Crucial Difference is a Choice by Founders

by | May 26, 2017

Small businesses and startups look more similar than ever. Quick, can you tell if this is a small business or a startup?

  • Growing 30 percent a year with 10 employees
  • Subscription business model with customers across the country
  • Digitally-powered products and services
  • Owner/founder who wants to sell the company someday
  • No outside funding besides friends, family and credit cards
  • Breakeven cashflow with a small paper profit
  • Employees wear t-shirts and jeans to work

You can’t tell the difference, based on this information. This could be a small business or a SaaS (software as a service) startup.

Savvy small businesses are innovative and digitally-powered now. The majority of software (SaaS) startups are self-funded and surviving with Lean Startup habits.

Both are hard. Both have risks. Both can start small and grow big. Both can go out of business. Both have ambitious and talented leaders who want to be their own bosses.

The real difference now is the intent to grow big or stay small.

Startups have higher ambition to create big businesses and get there faster. Invest now for a big payoff later. Go big or die. Change the world.

Small businesses don’t have the same aggressive visions and aren’t placing their bets in the same way. They don’t risk as much. They don’t go too fast. Most stay small, but some grow into big businesses.

The difference is a decision by the founders on how to play the growth game. And it can change.

Some small businesses discover opportunities and redefine themselves as ambitious startups. Most startups fail to grow fast enough, so they simply turned into sustainable businesses that are not big, not growing fast and not going out of business.

It’s like the old joke, “What do you call a broken escalator?  Stairs.” Same thing, different speed.

Given the real difference, entrepreneurs should be very careful about what kind of business they decide they are in at any given time.

When your vision changes about how much you will risk to go big (or not), it’s time to retool your strategies, your tactics and your team.

1) Your investors change. Venture capital (VC) investors will only fund companies with real potential to grow to $50 million and higher within five to seven years. If you’re growing slower than that, profitable private equity investors or angel investors are a better fit. If you’re not growing and not profitable, you’ll have to make some tough decisions to get back to breakeven quickly.

2) Your investment approach changes. If you’re scaling back, you just can’t make as many of those costly investments that might pay off bigger in the future. When you’re scaling up, you need to look further ahead and make sure you are solving for where your company will be in a year or two. Many companies stop growing because they didn’t create foundations to support a larger and more complex company.

3) The CEO needs to change their approach. The mentality and habits of the CEO drives the culture of an early-stage company. If goals are reduced but the CEO is still pushing hard for big growth, employee frustration will grow fast. On the other hand, if the pace picks up and the CEO is still in a mindset of last year’s business, they need to get help and catch up quickly.

Small businesses and startups are both great adventures that do great things. Just be clear which game you are playing at any time and make the most of your business.