IT Voice Magazine August 2016

Difference between a Start-up and a Regular Small Business

What is the difference between a start-up and a regular small business? The words start-up, entrepreneur and small business are thrown around constantly – sometimes interchangeably. So how do you know if you are launching a start-up or small business?


Small Business Start-ups: “Work to Feed the Family”

Today, the overwhelming number of entrepreneurs and start-ups in the United States are still small businesses. There are lots of small businesses in the India. They make up 99.7 percent of all companies and employ 65 percent of all non-governmental workers. Small businesses are Sweet Shop, Car Rental, Drycleaners, grocery stores, hairdressers, consultants, travel agents, Internet commerce storefronts, carpenters, plumbers, electricians, etc. They are anyone who runs his/her own business.

They work as hard as any Silicon Valley entrepreneur. They hire local employees or family. Most are barely profitable. Small business entrepreneurship is not designed for scale, the owners want to own their own business and “feed the family.” The only capital available to them is their own savings, bank and small business loans and what they can borrow from relatives. Small business entrepreneurs don’t become billionaires and (not coincidentally) don’t make many appearances on magazine covers. But in sheer numbers, they are infinitely more representative of “entrepreneurship” than entrepreneurs in other categories—and their enterprises create local jobs.

Scalable Start-ups: “Born to Be Big” Scalable start-ups are what Silicon Valley entrepreneurs and their venture investors aspire to build. Google, Skype, Face book, Twitter are just the latest examples. From day one, the founders believe that their vision can change the world. Unlike small business entrepreneurs, their interest is not in earning a living but rather in creating equity in a company that eventually will become publicly traded or acquired, generating a multi-million-dollar payoff.

Scalable start-ups require risk capital to fund their search for a business model, and they attract investment from equally crazy financial investors—venture capitalists. They hire the best and the brightest. Their job is to search for a repeatable and scalable business model. When they find it, their focus on scale requires even more venture capital to fuel rapid expansion.

Scalable start-ups tend to group together in innovation clusters (Silicon Valley, Shanghai, New York, Boston, Israel, etc.). They make up a small percentage of the six types of start-ups, but because of the outsize returns, attract all the risk capital (and press).


Buyable Start-ups: “Born to Flip” In the last five years, Web and mobile app start-ups that are founded to be sold to larger companies have become popular. The plummeting cost required to build a product, the radically reduced time to bring a product to market and the availability of angel capital willing to invest less than a traditional VCs—INR 1000000 to INR 10000000 versus INR 50000000 on up—has allowed these companies to proliferate, and their investors to make money. Their goal is not to build a billion Rupees business, but to be sold to a larger company for INR 100000000 & more.


Social Start-ups: “Driven to Make a Difference” Social entrepreneurs are no less ambitious, passionate, or driven to make an impact than any other type of founder. But unlike scalable start-ups, their goal is to make the world a better place, not to take market share or to create to wealth for the founders. They may be organized as a nonprofits, a for-profit, or hybrid.”