August 12 2014

What Is the Difference Between A Startup and A Small Business?

Start-up business team in meeting, working on computerWhat is the difference between a startup and a small business?

We get this question a lot here at Lamp Post Group, and the answer is pretty simple: a startup refuses to be defined by its size. In fact, a startup often times refuses definitions of any kind.

Startups tend to exist in a place outside the usual rules, expectations, and familiar ideas. They exist to disrupt. They exist to solve problems people don’t know they have and meet needs they haven’t yet experienced. Startups cross genres and transform industries. So often times, these kinds of businesses are very hard to pin down.

What small businesses and startups have in common is hard working, tenacious founders who pour their blood, sweat, and tears into their organization. They even start out with similar sources of funding— personal savings, loans from families, and business loans sought out from banks and credit unions.

However, startups often aim to scale larger than small businesses do. While a local shoe store or car dealership or advertising agency might be content to seek out an ever-larger share of area business and pay the bills of their staff, startups often think in terms of national and international possibilities.

There is also the commonly-cited divide between startups, which often go through several fundraising rounds before they are fully profitable, while small businesses generally must be profitable or die.

Take a company like Amazon, for example. Amazon was founded in 1994, and never limited itself to simply being an online bookstore. It also built slow growth into its business plan, much to the frustration and confusion of some of its early investors. Today Amazon is one of the largest businesses in the country, and it is certainly profitable. Yet it remains a startup in spirt, rather than a small business or large business or really any other type of business, because it continue to pivot and challenge preconceived notions about what an online book retailer can do.

Today Amazon is revolutionizing everything from the publishing industry to the transportation industry, experimenting with eBook rollouts and pushing the FCC to change laws to allow commercial drones to make deliveries. Amazon has always focused on solutions rather than products. Though it has products aplenty— with an inventory of thousands of different items— it has even more solutions that are constantly in play and under development.

Though many of the companies today’s startups look to for inspiration are hardly the small fits-in-a-garage organizations they once were, they still behave like the nimble young companies they once were. They continue to push the envelope and grow. If they can’t expand beyond national and international borders, they expand into new industries and areas. The shoot for the stars, sometimes literally in the case of SpaceX.

Startups and small businesses both play important roles in the economy and create valuable jobs for millions of hardworking people. They both take chutzpa and passion for success, and they both make clients happy. Yet the crucial difference between startups and small business is the tendency to think outside the box, to ask the questions that have never been asked. The truth is that the difference between small businesses and startups isn’t in the  size of the business, but in scalability of imagination.