What's the Difference Between a Startup & a Small Business?

Some businesses are small, but they aren’t small businesses. Some small businesses are growing fast, but are still not startups.

So what’s the difference between a startup and a small business?

In essence, a startup is a business that is focused on scalability. That means that they are looking to grow a lot and relatively quickly. They start small, but they don’t intend to stay that way. 

On the other hand, a small business is one that doesn’t have intentions to grow so rapidly. Many countries define a small business by the number of employees. In the US, a small business is one with fewer than 500 employees and/or less than $7.5M in revenue. In Australia, a small business is one with fewer than 15 employees. The threshold in Europe is 50 employees.

Because small businesses are seen as an important part of the economy, many governments offer special funding, grants, and business services for small businesses. The Small Business Administration in the US is that agency.

Finally, small businesses typically are private and have no intention of ever being publicly traded. 

Startups may, at least at first, qualify as a small business based on the number of employees. That said, their approach to business and to growth is typically very different. A startup could technically qualify as a small business for years, even while pursuing that growth. 

Since startups are so focused on growth, they often sell products and/or services that can scale. That model for a startup business is often “build it once, sell it many times” via a license or subscription.  However, companies like Uber and WeWork are also considered startups, even though they don’t fall into the software subscription business. Instead, these companies are seen as startups because they’re disruptive, tech-enabled, and expansion-focused. 

In this way, the difference between a small business and a startup is about intention.

Small businesses intend to remain that way, to get better at serving their customers, and to build a company that can support their family and community. Startups do start small, but intended to quickly expand, gaining market share, increasing revenue, attracting investors, and ultimately generating millions or billions in revenue.

Such a single-minded approach to growth can result in ethical and profitability challenges. It seems like there’s an article every other day about mistakes these massive startups make, whether it’s Uber, WeWork, or Theranos. 

Today, many startups are choosing to focus on sustainable, scalable growth in order to avoid these types of problems. In my opinion, it’s a necessary shift toward a more values-based and customer-focused way of doing business. Growth is and should still be the goal for startups, but it matters how that growth is achieved.

If you’re looking to grow your business in 2020, you may want to check out the Beginner’s Guide to Startup Marketing. It’s totally free and you can get it here.

This 26+ page resource is chock-full of my best tips for DIY growth marketing, written for startups.

Here at The Lane Collective, we’re evolving to become a true growth incubator for startups and small business. Our goal is to help founders, owners, and creative entrepreneurs build an ecosystem for growth that includes affordable expert consulting, business mentoring, and in the future, funding.

An Additional Note...

Part of that process of building a growth incubator is finding other marketing, sales, operations, and branding pros who are interested in being part of this Collective.

If you’re interested in joining The Lane Collective and helping startups, small businesses, and creative entrepreneurs grow their business, you can learn more by getting an overview deck here.