What’s the difference between a start-up and a small business?

Start-up vs. Small Business-StratoServeIt's important to understand the difference between a small business and  a start-up just to be sure that you know what you are getting into. Here are three differences:

  1. Small businesses have a business model- start-ups are building the business model: Take any small business on main street America from a franchise, a liquor store, a restaurant, a nail spa and salon, a gym and tanning salon,an accounting and tax practice, a doctor's office or a chiropractor…. there is a well established business model. The prices you can charge, what customers can expect and how you can succeed is pretty easy to find out if just asked a few owners of the same type of business. On the other hand, start-ups are discovering their business model because they are trying to innovate. Start-ups have a passionate belief in their idea, have seen some validation and are trying to change the world as they aim to scale their business model. Small-businesses have an idea that's proven, discipline and business skills can make a huge difference to the success of their model. Small businesses create local jobs but a majority have no desire to innovate or grow.
  2. Business school  thinking works for small business – not for start-ups: Consider that a start-up has a hard time getting bank credit simply because the model is not proven to generate revenue despite a great business plan. Credit is  easier for small businesses, particularly when they have physical assets and a business plan for something proven like a popular franchise. The guidelines of the SBA for small business success, sound eerily similar to a typical MBA curriculum. On the other hand, innovation is risky business and start-ups struggle every day, to work on the goals they want to achieve, to change the world for the better. Just read about the struggles of Jan Koum and Brian Acton whose company Whatsapp was bought by Facebook for $19 Billion. Start-ups need business support in business functions like accounting and law but have to figure out the market and production themselves.
  3. It's easier to succeed in a small business than a start-up: This one is probably obvious from the above.Innovation is a risky business and start-ups fail over 90% of the time, for a variety of reasons. Once they get funding, start-ups probably become complacent and the "necessity is the mother of invention" dictum starts to fail. On the other hand only 50-70% small businesses fail in the first 18 months.

Small businesses do more for the economy and jobs than start-ups, because a good funded business plan for expanding or new small businesses, create immediate main street jobs. The start-up takes more time to figure out the jobs, as their model evolves and innovation takes wings.

When big companies innovate, they have resources and yet fail over half the time for they are not able to bring the entrepreneur's passion to the new product team and organization and the bureaucracy kills whatever spirit company innovators have. Since entrepreneurs are passionate visionaries and are used to rejection at every stage, those that persist do succeed in changing the world. Contact StratoServe.

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