When we hear the word “startup,” what usually crosses our minds? We immediately begin playing a reel of a bunch of twenty-something year old web developers, huddled together in a retro office somewhere in the SF Bay Area. A lighthearted and open workplace that is among some of the most forward thinking and creative communities. So, when most of us hear people use the word “startup” in association with a small businesses–say a restaurant, cafe, hair salon or dental practice–our minds don’t naturally associate the two. And this doesn’t come as a surprise. The thing is, a tech startup or any type of startup for that matter doesn’t have to be technology focused as we most often assume. A traditional small business venture is different for a number of reasons, most notably the way management thinks about growth. Despite these differences, both small business ventures and startups require good communication and graphic design. Because both small ventures and startups are fast in growth and limited in budget, it wouldn’t be a surprise for them to use web design services by firms like Designhill.
Difference #1 – The growth of a startup company compared to the growth of a small business venture
Startups are different from small business ventures mainly because they are designed to grow fast on limited resources internally. That is where outsourcing becomes a more common practice and startups might choose to build web platforms from services like web design by Designhill. Having good web design means that startups and small business ventures have a platform they can use to sell to a very large audience. For most businesses, this is not the case. Generally speaking, this is something that startups have a great advantage in as they are predominated created by a generation of people that grew up with the internet. Having a target market is one thing but as a business owner, you need to be able to reach and serve all of those within your market. This is one of the reasons, most startups are tech start ups. Online businesses can more easily reach a large market because they traverse time and space–people can buy from you or use your product regardless of whether you’re awake or not and whether you’re in Cape Town or New York. The distinctive feature of most startups is that they are not constrained by the factor of time and can grow faster than small business ventures that require word of mouth promotion.
According to the Small Business Association, “In the world of business, the word ‘startup’ goes beyond a company just getting off the ground. The term startup is also associated with a business that is typically technology oriented and has high growth potential. Startups have some unique struggles, especially in regard to financing. That’s because investors are looking for the highest potential return on investment, while balancing the associated risks.”
That said, not all technology companies have a very large market. If you sell software written in Hungarian or Hungarian school teachers, you’ve already got a very select market. According to investor and angel entrepreneur Paul Graham, “that’s the difference between Google and a barbershop.” A barbershop has much less growth potential as do small business ventures compared to startups. To grow rapidly, you need to make something you can sell to a very large market.
Difference #2: The funding for a startup company compared to the funding for a small business venture
Apart from having fairly different growth strategies, startups seek financial investment differently than most small business ventures. Startups tend to rely on capital that comes by means of angel investors or venture capital firms, while small business ventures may tend to rely on loans and grants from financial institutions. The interesting thing about venture capital is that those providing it tend to have a more active role in the startup company they are backing–meaning they advise the management to increase the success rate of the startup. While a small business venture awarded a grant or loan may occasionally need to report back to their bank to ensure they are able to make payments, a startup with angel backing will probably be getting a bit more help without the risk of losing financial resources. Since the investor is the one taking the biggest risk, the incentive for them to help a startup that is young and inexperienced makes for a better resource and stream of funding that a small business venture could ever have.
Difference #3: The Big Picture
Another factor you’ll want to keep in mind is your vision for your business. If you’re pitching for venture capitalist, you’ll need to provide them a good exit strategy or you’ll be unlikely to get it the financial backing. Venture capitalists need an exit strategy as they need to maximize their returns on their investments. If you’d still like to be running the company in 10 years time, you’re probably going to want to ensure that exit plan comes in the form of a steady revenue stream that allows you to pay off investors, an IPO instead of a buy-out, or simply opt for a different strategy–your own funds, or loans and grants, either private or governmental. Running a company long term is closer to the means of a small business venture and less so a startup company.
Exit strategy development is a problem you won’t have with your own business, at least not until you’ve made it big or until you change your mind about owning the business. It is mainly for investors or financial institutions to gain a better idea of which direction you’re going. The point is, in a traditional small business venture doesn’t require as much of a planned exit strategy as there is no intention of exiting the marketplace in the short run. You’ll be entirely responsible for the future of your company without the influence of investors and at the end of the day, it will come down to you on whether or not you want to run the business for the rest of your life or decide to sell, merge or launch it on the stock market.
Given the rise of startup incubators and accelerators, the availability of funding for early-stage startups, and the fact that big companies everywhere are buying startups instead of focusing on in-house innovation, the popularity of startups are currently rising compared to the demands of small business ventures.