Startups Versus Small Businesses – What’s The Difference?


When I first started my planning my productivity app startup, I thought I was doing everything correctly. From my years of learning about small businesses, I remembered I should: research my competitors, see if there is a market for my product, as well as everything else that would eventually become my business plan. The only problem is, that was all wrong. The first mistake I made was thinking a startup was the same as a small business. Below I’ll show the differences between startups versus small businesses.

Startups Search – Small Businesses Execute

Back in the day, when you started a business, all you needed was an operating (business) plan and a financial forecast. If I was smart enough and did enough research, constructed that magical 5-year plan and hired a bunch of people bam – the business was sorted. 

Now don’t get me wrong, this doesn’t mean you don’t need an operating plan or a financial forecast, but you need some real facts first from the outside world. This generally comes first in the form of the Business Model Canvas. Startups involve organising your thinking, getting out of the building, turning your hypothesis into facts and updating your scorecard. Starting with SEARCH (i.e. the Business Model Canvas) and then the EXECUTION (the operating plan and financial forecast), only then will you be on your way to a successful startup.

Startups Go Hard

Another major difference between startups and small businesses is that with startups – you will want to take over the world. This stands in stark contrast with the definition of a small business, which the U.S. Small Business Administration (SBA) describes as “independently owned and operated, organized for profit, and not dominant in its field.”

Disrupt is a word that is almost always linked with startups. “Uber plans to disrupt the taxi industry”, “Airbnb plans to disrupt the hotel industry”. With small businesses though, your plan is to be your own boss and dominate the local market. For example, where I live in Johannesburg (Melville), small businesses are plentiful. Everywhere you look, someone is trying to own the hipster breakfast and tattoo market. Therefore, this means the initial motivation to succeed is different for the two kinds of business models.

Nothing Lasts Forever

Remember when I said that a startup starts with the SEARCH, well that’s because a startup founder has to search for a repeatable and scalable business model. From here, you’ll have to:

  • Decide on a product/service with a set of valuable features
  • Test different ideas (What is our/my target market? What distribution channels will I use? Where will our money come from? What are my customers liking/not liking?)
  • Quickly validate your startup model with the ideas from the previous point with your customers

It’s a continuous cycle until your product eventually sticks. This means that doing all the leg work of proving the business model will work will transform into actually executing your model. Yes, some of your flexibility and innovation will take a back seat, but it means you’re now on the right path. Small businesses start at your execution phase and just continue on from there.

Show Me The Money

Startups are weird with money. When you’re a small business, the thought of giving up control of your business is immensely scary. But with a startup, it’s almost vital for scalable growth. Funds also arrive from different places in a startup.

I usually try to keep startup funding with money used from whatever I can find between my couch pillows. From there it can evolve into lending from friends and family. When the startup starts looking good, outside investment say from seed investors, venture capitalists, and eventually an IPO (initial public offering).

In the end, it’s very important to understand the difference between startups and small businesses. In most cases, you’ll end up treating your startup like a small business, where you instantly have to stop what you’re doing and reaccess what you’re trying to achieve. They do overlap in some situations but knowing when to use what strategy can significantly increase your chances success. Drop us an email if you’d like some assistance with your small business or startup!

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