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5 Differences between a Startup and Small Business

Let's state the obvious, starting a business is not an easy task. It requires a lot of hard work, dedication, and determination. A startup and a small business at the onset may look alike, but the levers for each are very different.

According to Gartner, a small business is defined as an organization with fewer than 100 employees. This includes businesses that are sole proprietorships, partnerships, or limited liability companies. In a Forbes article, a startup is defined as, 'Startups are businesses that want to disrupt industries and change the world - and do it at scale.'. 

When it comes to business, the terms “startup” and “small business” are often used interchangeably. However, there are some key differences between the two that are important to understand. Below are at 5 high level differences between startups and small business.

1. Funding Model: 

Startups are often funded by venture capitalists (VC), angel investors, or through crowdfunding, whereas small businesses typically rely on personal savings, loans from family and friends, or small business loans from banks. At the early stages, both can be bootstrapped, but startups eventually lean towards VC funding, in order to scale out. Small Businesses, on the other hand generally rely on themselves or SBA loans as a source of funding. 

2. Risk Profile: 

Startups are typically much riskier than small businesses, as they are often unproven and have a higher chance of failure. This is another reason why VC's are more inclined to invest in startups, potential of high rewards with high risk. Banks and other institutions look for less riskier asset class and small business fit that bill.

3. Product Mix:

Another key difference between a small business and a startup is the product. Startups typically have a new and, or innovative product that is not yet available on the market. Small businesses, on the other hand, typically have a more established product. 

4. Customer Mix:

Another key difference between a small business and a startup is the target market. Startups typically have a smaller target market than small businesses. This is because startups often focus on a niche market. This is not to suggest that small businesses also don't have a niche, but the difference is usually grabbing existing market share, whilst startups could generate a market that is yet to be defined. Customers are key to success in both cases. 

5. Growth Trajectory: 

Startups typically have high growth potential and are focused on scaling rapidly, whereas small businesses typically have more modest growth targets and may be more focused on generating steady revenue.


Both Startup and Small Businesses make look very similar at the onset, but it's critical to understand the subtle differences as the business starts to mature. It may also be deduced from the 5 differences that management styles and team dynamics are also very different for both types. A startup may have multiple founders, who may rely on VC's to provide future guidance, where as small businesses could have one owner, managed it by Limited Liability corporation (LLC) and sets the tone for the business. 

Video summary of the article:

Both forms of business required hard work, dedication and a bit of luck to reach their full potential.