Now whether you’re in Lagos, Abidjan, New York or Silicon Valley, if you work in the technology space, it’s more than likely that there’s “startup” talk around you. Incubator this and accelerator that, scale-up there and then — and with that, it’s more than likely that you, like us, have heard the words startup being used as an acronym for small business.
As the startup takes the world, it’s often been misunderstood that a startup is a “new business” that is starting, while in fact the definition holds a much more in-depth reasoning and connotation to it, and along with it – a very different way of funding it than its “starting business” counterpart.
What is a startup?
According to serial entrepreneur and Silicon Valley legend Steve Blank, a startup is a “temporary organization designed to search for a repeatable and scalable business model.” A startup, which he argues in the context of the tech industry should be short for “scalable startup,” which searches to not only prove their business model, but to do so quickly, in a way that will have a significant impact on the current market. This brings us to our first major difference between the startup and the small business.
A “Scalable” Startup Has The Intent To Become A Large Company
As Blank describes it, a scalable startup founder doesn’t just want to be her own boss; she wants to take over the universe. From day one her intent is to grow her startup into a large, disruptive company. She believes that she has come across the next “big idea,” that will shake up the industry, take customers from existing companies, or even create a new market.
This stands is 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.” such examples include a local butcher shop which employs less than 10 people, but also a manufacturing plant that employs less than 100 people.
Here Blank explains it perfectly :
Blank’s 6 types of startups, as summarized by Lionness Magazine :
Lifestyle Startups: Work to Live their Passion
On the California coast where I live, we see lifestyle entrepreneurs like surfers and divers who own small surf or dive shop or teach surfing and diving lessons to pay the bills so they can surf and dive some more. A lifestyle entrepreneur is living the life they love, works for no one but themselves while pursuing their personal passion. In Silicon Valley the equivalent is the journeyman coder or web designer who loves the technology and takes coding and U/I jobs because it’s a passion.
Small Business Startups: Work to Feed the Family
Today, the overwhelming number of entrepreneurs and startups in the United States are still small businesses. There are 5.7 million small businesses in the U.S. They make up 99.7 percent of all companies and employ 50 percent of all non-governmental workers.
Small businesses are grocery stores, hairdressers, consultants, travel agents, Internet commerce storefronts, carpenters, plumbers, electricians, etc. They are anyone who runs his/her own business.
They work as hard as any Silicon Valley entrepreneur. They hire local employees or family. Most are barely profitable. Small business entrepreneurship is not designed for scale, the owners want to own their own business and “feed the family.” The only capital available to them is their own savings, bank and small business loans and what they can borrow from relatives. Small business entrepreneurs don’t become billionaires and (not coincidentally) don’t make many appearances on magazine covers. But in sheer numbers, they are infinitely more representative of “entrepreneurship” than entrepreneurs in other categories—and their enterprises create local jobs.
Scalable Startups: Born to Be Big
Scalable startups are what Silicon Valley entrepreneurs and their venture investors aspire to build. Google, Skype, Facebook, Twitter are just the latest examples. From day one, the founders believe that their vision can change the world. Unlike small business entrepreneurs, their interest is not in earning a living but rather in creating equity in a company that eventually will become publicly traded or acquired, generating a multi-million-dollar payoff.
Scalable startups require risk capital to fund their search for a business model, and they attract investment from equally crazy financial investors—venture capitalists. They hire the best and the brightest. Their job is to search for a repeatable and scalable business model. When they find it, their focus on scale requires even more venture capital to fuel rapid expansion.
Scalable startups tend to group together in innovation clusters (Silicon Valley, Shanghai, New York, Boston, Israel, etc.). They make up a small percentage of the six types of startups, but because of the outsize returns, attract all the risk capital (and press).
Just in the last few years we’ve come to see that we had been building scalable startups inefficiently. Investors (and educators) treated startups as smaller versions of large companies. We now understand that’s just not true. While large companies execute known business models, startups are temporary organizations designed to search for a scalable and repeatable business model.
This insight has begun to change how we teach entrepreneurship, incubate startups and fund them.
Buyable Startups: Born to Flip
In the last five years, Web and mobile app startups that are founded to be sold to larger companies have become popular. The plummeting cost required to build a product, the radically reduced time to bring a product to market and the availability of angel capital willing to invest less than a traditional VCs—$100K to $1M versus $4M on up—has allowed these companies to proliferate, and their investors to make money. Their goal is not to build a billion dollar business, but to be sold to a larger company for $5-$50M.
Large Company Startups: Innovate or Evaporate
Large companies have finite life cycles. And over the last decade those cycles have grown shorter. Most grow through sustaining innovation, offering new products that are variants around their core products. Changes in customer tastes, new technologies, legislation, new competitors, etc. can create pressure for more disruptive innovation—requiring large companies to create entirely new products sold to new customers in new markets (i.e. Google and Android). Existing companies do this by either acquiring innovative companies (see Buyable Startups above) or attempting to build a disruptive product internally. Ironically, large company size and culture make disruptive innovation extremely difficult to execute.
Social Startups: Driven to Make a Difference
Social entrepreneurs are no less ambitious, passionate, or driven to make an impact than any other type of founder. But unlike scalable startups, their goal is to make the world a better place, not to take market share or to create to wealth for the founders. They may be organized as a nonprofit, a for-profit, or hybrid.”
[source : https://lionessmagazine.com/what-is-the-difference-between-a-startup-and-a-regular-small-business/]