Startup vs. Small Business: What are the Differences?
If you asked someone the definition of entrepreneurship, you’d likely get a range of answers. For many, entrepreneurship means innovation or being your own boss, while for others it defines a rebellious attitude toward blazing a new path in the business landscape. However, at its core, entrepreneurship is the act of creating, owning, and marketing an idea, a product, or a service while taking on the risks and benefits of carving out a potential new business.
Entrepreneurship shakes up that status quo when innovators create something that adds greater value to society, amplifying the need for all businesses to adapt and refine for the betterment of customers and growth. Entrepreneurship can also be a tool for social innovation by seeking to address larger social issues. Social entrepreneurs often seek to create more environmentally sustainable products, serve disadvantaged communities, or engage in philanthropy.
Entrepreneurs typically form a small business or startup to begin their business ventures, each with unique attributes. Those seeking advanced business degrees need to understand these two methods of entrepreneurship and their differences and strengths to decide which form of entrepreneurship is most appealing as a potential career path.
What Is a Startup?
When picturing a startup, one might imagine a company like Airbnb or Uber; however, what sets them apart from other companies that started from scratch? At their core, startups are disruptors for their industries, seeking to capitalize on outperforming inefficient incumbents or inventing entirely new services or products. In this role, an entrepreneur’s goal is to be the visionary for the startup’s path to success by orchestrating the research and development of a product or service.
As startups seek to grow as quickly as possible, entrepreneurial passion is crucial to keep them from faltering. While growth is important, so is investment, because a business can’t grow very much without a significant amount of starting capital. This requirement is another critical component of an entrepreneur’s role in a startup: Entrepreneurs are responsible for financing, either investing their own capital or seeking funding through connections to venture capital firms or high-income angel investors.
The size and speed of growth of a startup are two of the best reasons to work in one. As startups tend to begin with relatively small teams, the opportunity to take on a more active role in its development is open to all — there are fewer voices in the company. While more established companies rely on slower, more traditional growth methods, startups’ quick iteration allows for innovations and requests for quickly implemented changes. That kind of immediate reaction to performance data can be very appealing to people used to slower industries.
What Is a Small Business?
What designates a small business is its size and revenue (depending on the industry), according to the U.S. Small Business Administration (SBA), and it generally has fewer than 500 employees. Of all small businesses, about two-thirds have 99 or fewer employees, with more than half having fewer than five employees, according to the U.S. Census Bureau.
When starting and operating a small business, understanding its relation to established markets and industries is essential. Innovation remains a key concept; however, small businesses gear more toward bringing established products or services to a sustainable local market. Many small businesses are family owned and operated, passed down for generations.
Startup vs. Small Business: The Differences
While the two methods of entrepreneurship share similarities, their end goals have stark differences. Here are a few examples of how different they can be in practice.
Speed of Growth
While startups rapidly disrupt a market by introducing new methods or products into an industry, small businesses adapt existing business models to new local markets to create slow, sustained growth. Startups seek out growth to give back profits to initial investors, whose significant capital investment allows for that booming growth in the first place. The speed at which they can dominate an industry is key to their success. Small businesses, while still requiring significant investment to get off the ground, don’t rely on continuous large amounts of profits to maintain themselves.
Although they share the common trait of building a company from scratch, startups and small businesses have different end goals and objectives. Small businesses seek to maintain themselves — owners are likely to manage them until they pass them on to relatives, protegees, or buyers. On the other hand, startups seek to grow quickly, with an end goal such as selling the business or going public with the highest possible value, allowing investors to profit off the initial capital that allowed for that growth.
Risk
In comparing startups versus small businesses, each has different risks. While both require significant initial investment and both run the risk of failure, startups face much lower odds of success. A report from Startup Genome states that about 90% of startups fail to provide a return for investors before running out of funding.
While small businesses are far from guaranteed to succeed, according to data from the SBA, they have a 20% chance of failing in the first year — significantly lower than startups. Small businesses benefit from launching in an established market and are a much safer and smaller investment.
Risk-averse businesspeople should compare the role of entrepreneur versus intrapreneur. Intrapreneurs are still innovative business leaders, but they work as employees for larger companies. While this means they share the rewards of their ingenuity with their employers, the employer absorbs the liability if an idea fails.
Build Your Own Future
Despite the risks, startups and small businesses are the main methods of entrepreneurship in business. Both can lead to financial and career rewards but understanding the details of running a business is crucial to success. Earning an advanced business degree such as a Master of Business Administration (MBA) can be a key step in preparing individuals for entrepreneurship and inspiring their business paths.
The online MBA from Maryville University offers students that foundation and can help them assess whether their strengths lie in the breakneck pace of a startup or the local community building of a small business. With 12 distinct concentrations, such as Emerging and Digital Media, Marketing, and Software Development, the program offers several avenues to choose from based on your career interests and strengths. Transform your entrepreneurial aspirations into a professional business with Maryville University.
Recommended Reading
Exploring Entrepreneurship: Starting and Operating a Small Business
Importance of Entrepreneurship: Types, Benefits, and Styles
Sources
Indeed, The Importance of Entrepreneurship: Features and Types
Investopedia, “How Entrepreneurship Affects the Economy”
Nerd Wallet, “Startup vs. Small Business: What’s the Real Difference?”
Oberlo, Number of Small Business Employees in the U.S. in 2021
Startup Genome, Key Insights from #GSER2022
U.S. Census Bureau, “The Majority of U.S. Businesses Have Fewer Than Five Employees”