Are you considering starting your company but confused about whether to go for a startup or a small company? You’re not alone. Many potential entrepreneurs need help comprehending the distinction between these two terms.
Starting a business calls for much effort, commitment, and knowledge. It takes courage to leave your day job and take on a journey of business ownership. While ‘small business’ and ‘startup’ are often used interchangeably, their objectives, tactics, and approaches differ.
Hire Accountants for Startup
Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.
So, whether you’re choosing between starting a small company or a startup or simply learning more about these concepts, continue reading to discover the difference between a small company and a startup!
Table of contents
Difference between startup and new business
Definition and focus
Startups are usually newly formed businesses designed to scale quickly. They are defined by their pursuit of a disruptive business model, creativity, and a focus on gathering an important market share. Startups frequently focus on unexplored but very promising markets.
Small businesses tend to be more established and mainly emphasise offering goods or services to a local or specific market. They frequently strive for steady, sustainable growth and might have different fast growth goals than startups.
Risks
Startups are frequently established due to a founder’s ambition to create something new. Something new might be a novel item, service, or marketing strategy. Consequently, the work required to establish it from the ground up will be larger than a small corporation needs. As a result, it’s a riskier bet.
Small businesses are considerably less risky than startups. Startups take a lot of effort and time (in every sense of the term), but they also have a higher chance of failure.
Smaller companies take on some risk alone, but the risk is different. Small businesses, for the most part, do not innovate. Their businesses possess a solid company plan in place. As small businesses are more than just centred on growth, they require much longer to succeed. They like to stick to tried-and-true company procedures and aren’t especially concerned about quick growth.
Funding
Startups tend to be backed by venture capital companies. Entrepreneurs must justify their growth forecasts and demonstrate how the proposed investment would raise the startup’s valuation to secure funding. When presenting to investors, startups must provide a business plan demonstrating how they can accomplish this growth and how it will boost their startup’s value.
Small firms don’t need to offer high revenue forecasts because they aren’t addressing large venture capitalists whose major purpose is to improve investment wealth. Consequently, small business owners usually take loans from banks or alternative lenders.
Business objective
A startup begins its journey small but has a very big vision. It has come into existence to demonstrate that the company’s model may significantly affect the current market.
From the onset, entrepreneurs envision developing their firm into a large, disruptive business that will rearrange a current sector or create a new one altogether.
SMEs follow a tried and tested path and don’t travel off it. They are structured organisations that comply with a known and developed business model. The primary goal of small business founders is to make money by providing value to their clients. The best way to accomplish this is by following a solid and profitable business model, securing a profitable position in the market for a long time, and getting financing to fund the company’s growth.
Innovations
One of the most significant variations between startups and small enterprises is product or service innovation.
Small companies do not make any claims as to distinctiveness. Your company is one out of numerous companies alike (for instance, a law office, hairdressing salon, restaurant, blog/video blog, etc.). Starting a company, you can effortlessly follow out-of-the-box solutions.
Innovations are the most essential components for a startup. They are meant to create something new and to enhance what already exists. For example, one can create a new class of products (wearable devices), a new business model, or an innovation no one knows.
Time horizon
The concept of time horizon highlights the key distinction between startups and smaller enterprises, delineating their long-term outlook and aspirations.
Startups are defined by a shorter time horizon fueled by the imperative of accomplishing critical milestones swiftly. These milestones frequently involve reaching an important user base, achieving revenue, and carrying out rapid scalability strategies.
Success for startups is frequently determined by their ability to execute quick, significant impact methods to prepare them for potential exit scenarios, like acquisition by an established business or going public through an Initial Public Offering (IPO).
The ever-evolving startup landscape demands agility, rapid decision-making, and an emphasis on accomplishing substantial market presence within a condensed time frame.
In contrast, small enterprises operate with an extended horizon, highlighting long-term profitability and gradual growth. Success for small businesses is frequently assessed through customer satisfaction, encouraging repeat business, and building a robust presence in local or niche markets.
The extended time horizon lets startups prioritise stability, develop enduring customer relationships, and slowly adapt to developing market conditions without the urgency for rapid, large-scale growth.
In essence, the contrasting time horizons form the nature of these businesses, directing their tactics and influencing how success is defined and chased.
Listed below are few other key differences between small business and startups:
| Small Business | Startup |
| Can start with one individual | It requires a bigger team |
| Works on a traditional business model | It is based on innovation/technology |
| Here, money isn’t always the main objective | Here, making money is the main objective |
| It grows steadily | It grows exponentially |
| Existing products or services focused | Innovation focused |
| Strong focused on risk management | Higher risk apetite |
| Traditional culture | Dynamic culture |
| Long term sustainability, succession planning | Exit strategy is usually IPO or acquisition |
Hire Accountants for Startup
Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.
Final thoughts
A startup is a small business that has an opportunity to develop into something much bigger. Both types of companies have identical objectives to make money and get clients and staff, but they vary in their methods for achieving those goals.
The biggest difference between a startup and a small corporation is that startups concentrate on innovation and scalable business models, while smaller enterprises focus on efficiency and optimisation.
