Ep 133: Am I considered a STARTUP or a SMALL BUSINESS?
I'm an entrepreneur, I'm building my own company. Do I call myself a startup? Do I call myself a small business? Is there a difference? What's the difference? What does it mean? Who am I in this world of things? So being a startup and being a small business does carry a differentiation, and we're going to get into some of the details and how it may affect the business that you're building.
In this episode, you'll learn...
The difference between a startup and a small business
The role language plays in labeling your biz and opening new opportunities
How your actions may reflect your startup vs small business label
We have something called Small Business Saturdays here in Milwaukee and I think it might be a nationwide thing. And to be honest, I've never actually been to one, shame on me. However, I am aware of the event and I'm aware of the businesses that usually come to the events and the businesses that usually show up at the small business event are shops that have very generally more predictable products and services. And when I say predictable, they are selling jewelry or they have a service for cake decorating or transportation business or things along those lines. Just very predictable services and products that you might find in the market. Perhaps they have a unique twist or spin on them, but there are things that you've seen before, just a different vendor with the product.
So now thinking about small businesses and then thinking about startups. When I'm thinking about startups, there is something in particular and I don't know if you've ever heard of it, but there's something called a Y Combinator, which is essentially, it's an incubator for startups out in Silicon Valley. Bunch of founders comes together, a bunch of startups, they go through this incubator process, they go through pitches for funding, that type of thing. So when you think about your small business Saturday and a group of businesses with products and services that you're familiar with, and then you contrast that with a demo day from a Y Combinator, which is where there's a mass of startups all together essentially pitching out and saying, "Hey, this is what we do." You see vastly different types of businesses and so when the question comes up, am I considered a startup or a small business?
There really are some differentiations that are key to help decide which camp you might fall into. So Fundera, which is a funding platform, provides a great definition, but I think the definition is really a base definition. And now layer on a little bit in my own definition, but Fundera defines the difference between a startup and a small business as this, the main difference between startups and small businesses are that startups focus on disrupting markets and driving top-line revenue at a fast pace. Small businesses on the other hand, often set their goals on long, longterm, stable growth in an existing market. So now when we think about the small business versus the stardom, I take it a step farther and kind of look at it this way. If I'm thinking about small business, I'm thinking stable, longterm. You know whether or not they have a physical presence doesn't matter as much, but stable, longterm, they figured out their business and they're just chugging along.
I'm just bringing in more business and the question they ask themselves is "How can I grow?" Now of course startups are going to ask that same, "How can I grow" question, but startups are in a state of an evolving business model. They don't quite know this thing that I'm creating. Is it a full-fledged business? Can I make it a business? Is the business model that I'm coming forward with? Is it going to work? Do I have to switch and be a different business? So if you can see that there's a vast difference, one knows their business model. There's your small business saying, "I know my business model, I know how this is gonna work." The startup, "I don't quite know how it's going to work. I think we should provide this in the market. Let's get out there, let's get some funding, let's make it happen."
When you think about language, the language of startups and the language of small businesses can be very different. And I would say mostly different on the startup side. So if you think about startups, you hear more language around raising capital, venture-backed, venture firms, being self-funded, exits, exit strategies, IPO (Initial Public Offerings), buyouts, funding series rounds, series A, series B, series C, what have you. You don't necessarily hear that associated with small businesses. Things are more stable, right? Like I mentioned, there's more of a working model. The growth isn't necessarily as fast as sort of a relaxed environment.
All of you listening (or reading) and you have a small business, you're probably saying to me, "Candace, wait a second. No, my business is anything but relaxed." But when I say relaxed, relaxed in the sense that you know where you want your business to go. And at some point here you found that "Yep, I've got an audience, I've got a market for it and I'm just finding out how I can get more sales as I go along." So when you talk about the difference in language, if you look from a financial perspective, startups are heavy on cash, investment injections at multiple periods of time. So when I talked about the series A, series B, series C, those are all things called funding rounds for your traditional startups. Now, more and more startups are doing their own self-funding, which I personally love over being venture-backed and handing out equity or taking on debt to take on investment.
So you hear a lot of heavy injections of cash over time from a startup From a small business, what you're more likely to hear is, "Okay, I have all of these startup costs that I need to get my business off the ground." And then at some point in time, the business, it breaks even, it begins to be profitable. And it just chugs along. It chugs along very different from a startup that is saying, "Hey, trust us, we've got a beautiful business model. It's going to win, but we need $1 million. And then a year later we need a million and five. You know it's the nature of the beast on that side. So if you're still thinking to yourself, "All right, am I a start-up or am I a small business?" I would think it would be fairly clear by now, but let's think a little bit about the actions that may be associated one way or another.
So from a startup standpoint, you've probably got a super fast-paced mode going on, you're rigorously testing things, you're trying to figure out what's gonna work, what's gonna be the next thing that's going to bring in revenue. Sometimes you're thinking this wonderful idea that I have, can I even monetize this idea? So you're moving at a fairly rapid pace to try to build out that business model. Now from a small business perspective, not that you're not moving quickly, but again, you probably are pretty settled in this thing. This business that you're building, that you're about to venture out on, you're probably fairly wedded to the idea and your startup costs, all this stuff are wedded to this idea of "this is going to work." And it's probably, again, products and services that are more on the predictable side. It doesn't mean it's not unique in some way, but probably more on the predictable side and not necessarily disruptive or idea that no one has thought of before ever.
So take all these things, the language of startups versus small businesses, the actions of startups versus small businesses, and give yourself an assessment and say, "Hey, maybe I am the startup camp. Maybe I am a small business camp." Either way, there are commonalities that overlap. Either way, you're an entrepreneur and building a business, and there are things that you should consider regardless of "who am I targeting?" And even on the small business side, if you're not thinking about it, testing and learning, actively deciding whether or not you should stick with your current business. Maybe it's our current product line, or maybe you should change it out. So there are some traits that should go across both ways, but there are major differences between the startups and the small businesses. So take this, figure out what you want to call yourself and jump into action or continue moving down your path.