Oftentimes, people tend to use the words ‘startups’, and ‘small businesses’ interchangeably however there is a huge difference between the two.
A startup can at some point be a small business but a small business cannot be a startup. This is because a startup business model is different from that of a small business.
A small business is either a sole proprietorship business or one with few employees that meet the need of just the immediate environment while a startup is any business that leverages technology to meet a market need that transcends even that of the immediate environment.
Factors differentiating small Businesses from startups:
Funding
Startups source funds mostly from investors such as angel investors, venture capital firms while small businesses thrive on grants and loans.
The investors get equity from the startup while in loan situations, the small business provides collateral.
Also for startups, there are various funding stages; there are the pre-seed capital, seed capital, Series A, B, C funding stages while in small businesses there are no funding stages.
Scalability
This is an intrinsic factor of a startup, startups can scale within a short time range leveraging technology while small businesses don’t scale as fast as startups do.
Though these small businesses might grow over time, it takes a longer period than a startup.
Sometimes, the growth doesn’t go beyond that environment too.
Target Audience
Startups might be situated in a location but the target audience always isn’t limited to that location, unlike small businesses whose primary aim is to satisfy the needs of their immediate environment.
Exit Plan
Startups design an exit plan for investors when outsourcing funds, these spell out the return on interest (ROI) of the investors.
A small business isn’t bothered about an exit plan, grants are their best bets, and if eventually a loan was taken to set up the business. The small business is worried about how to pay back the loan.
Labour intensive
Startups are not labour intensive as they mostly leverage technology to grow their business idea while small businesses require physical labour for the business to grow.
Due to the nature of the work of most small businesses, technology is used mainly as an additional feature instead of the main feature which is obtainable in startups.
Hence, small businesses are more labour intensive than startups.
Product risk
There’s still a possibility of startups failing even after their products have been introduced into the market, unlike the small businesses where the product or services are usually already established market needs.
Small businesses only have to study their environment to decide what is the most glaring need of their environment and then start a business in line with their findings.
Conclusively, the major difference between small businesses and startups is the business model, a business can be run by someone as a small business yet that same business in the hands of a tech-savvy person will be run like a startup.
This can be seen in Jumia and the grocery store in your locality, both businesses are the same but the scope, business model, reach, and service discharge is different.
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