I’m in a stage in my life where I’ve decided it’s really about time I start my own company. I’m evaluating various ideas that align with my passions and skills. One of those interests is coffee and so I thought it’d be good to look into various coffee ideas and explore them.
During my research I came across a few articles that referred to coffee shops as startups. Which made me think – when was the last time I read about a small business starting up? I couldn’t. It seems that nowadays everything is a “startup.” As if “small business” was a dirty word.
I tweeted my observation and @simplrofficial replied “Great topic Magda, glad to see this finally brought. What differentiates a startup? Is it a matter of investments or seed?” This really got me thinking. I guess I don’t really know the difference so I decided to think about it and do some research. Here are my thoughts on what is the difference between a startup and a small business. I’d love to hear your thoughts in comments.
The difference between a startup and a small business
I tried to put together definitions of startups and small businesses and it was quite challenging. I don’t think I nailed it because it does get quite confusing if you think about it. Here goes:
Startup – I came across an interesting article on Forbes that provided a way of starting to define startups. A startup is a company which aims to solve a problem that’s currently not solved. Heck, it may even solve a problem that we didn’t know we had. The solution may not be apparent and success is not guaranteed. A startup innovates. To be considered a startup, the company must be young (3-5 years max), fast-growing and have fewer than 500 employees. Having seed funding doesn’t define a startup to be a startup because a) many small businesses also get seed money and b) many startups forego investment in favor of bootstrapping.
On a personal note, I’ve always associated startups with technology and innovation, be it internet, engineering or other. To me, a startup was a small business that has innovated in their own category or has created a whole new category of service or product through innovation.
Small business – Technically speaking, a small business is defined by the number of employees (which varies country to country, see figure on the right) and refers to a corporation, partnership or sole proprietorship. It is created in order to make money for its owners. Many times a small business is defined by a physical center of operations such as restaurants, trade offices, or small manufacturing. Small business focuses on repeatable offering of service or product, but not necessarily doing it differently than has been done before.
However, if a small business receives a substantial ($1m?) private or corporate investment, it officially turns a small business into a startup even if there’s little innovation. I say this because a large investment usually creates the expectation of fast growth and expansion, which is characteristic of startups.
You can see why this is all confusing :).
Using these definitions, all startups are small businesses at first, but not all small businesses are startups. Some small businesses are startups if the business they perform is innovative or solving a problem in a way that’s different to the status quo. At some point, startups cease to be startups altogether, even if they are still solving a problem, which was a major part of their original definition.
Yes, I’m getting a headache. How about you?
Is “small business” a dirty word?
With success of numerous former startups like Facebook, LinkedIn, Uber or Twitter, the term “startup” has become a hot buzzword. So much so that it’s used to describe pretty much anything. In my example, a coffee shop is not a startup if it’s just a coffee shop. If it did something radically different like inventing robot baristas thus eliminating staffing costs, and then selling those robots, that would qualify the coffee shop as a startup.
“Startup” is used everywhere and to describe anything. And that’s a problem.
“Startup” is used everywhere and to describe anything. And that’s a problem. The denotation of the word is “small, new, innovative, solving a problem.” The connotation of startup now includes the dangerous “cool, sexy, fun, modern, young.” On the other hand, small business connotation has now become “old fashioned, antiquated, barely getting by, family business.”
Is yet another laundry delivery service in San Francisco a startup? No, it’s a small business.
It’s as if being a small business is a bad thing now. Why else are companies – including regular old coffee shops – calling themselves a startup instead?
Why does it matter, anyway?
I suppose this is very much a matter of opinion, but I think this topic matters because we need to support small business – in practice and in name.
The world was built on small business. Before there were chains and corporations, there were merchants. Every company had to start somewhere. Furthermore, small business is literally what serves our daily lives — think of your dry cleaner, your contractor, the bakery that sells your favorite brioche, your mechanic or even your pets’ vet; it’s all small business. Beyond function, small business is what adds color and personality to an otherwise chain store, franchised, Starbucks and Walmart covered world. It’s important for society to value and support small business, or we’ll end up like one of those creepy sci-fi novels where everything looks the same. Well, at least that’s important to me.
By overusing “startup” we’re creating an environment where “small business” is a dirty word, thereby disabling small business from prospering.
By overusing “startup” we’re creating an environment where “small business” is a dirty word, thereby undermining small business. At least that’s what I think… So if I open a coffee shop, it’ll be a proud small business. If I reinvent the wheel, it’ll be a startup.
What about you? How do you differentiate between a startup and a small business?
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