The Difference Between a Startup Company and a Small Business

The words “startup” and “small business” are often interchanged and used to describe the same thing. Is there actually a difference or have the words and their meaning become so intertwined that they now mean the same? Or could understanding their differences help you understand which is the best option for you and your business idea? Read on to learn more about the differences between startups and small businesses and how having a grasp on which your idea falls into can make starting a business easier in the long run.

How Did We Get Here?

As more digital routes of information have become easily accessible, people have had the opportunity to learn about businesses and how to start one. Starting a business could be considered a “startup” and then it could also be a “small business” since it’s just you. The words can easily be swapped, but it’s important to note that there are differences. And while in everyday vernacular, the two might be interchanged, as a business owner or aspiring entrepreneur it’s important to know how both words can apply and signal the different stages of growth that your business is in.

When is Your Business Considered a Startup?

Startups tend to be designed from their inception to disrupt an industry and quickly grow their revenue. Generally, the founders of startups seek funding from outside investors, allowing them to have more capital on hand to grow their business rapidly. Beyond funding, startups aim to grow large and into an influential company. Some refer to startup business models as “disruptive” due to their nature to break into an established industry with an innovation. Initially, when you hear a business called a startup you may think only in terms of the technology industry or media. However, startups can be in nearly any field.

Outside of the disruptive description of a startup that most of us think of, it can also refer to any small business that is just starting. Initially, LeMay & Company was a startup before finding secure footing and becoming a true small business. As a business idea goes from concept to first stages of becoming a functioning business, it is considered a startup. From there it morphs into a small business. How? Keep reading to learn more.

When Does It Become a Small Business?

A small business is a privately owned company – and can be in any business category whether you’re creating product, selling items, or providing a service. According to the Small Business Administration (SBA), to be considered a small business, the venture needs to be for-profit, independently owned and operated, and not be nationally dominant in its field. Small businesses can employ up to 1,500 people, but about 89% of U.S small businesses employ 20 or fewer staff.

As a business begins to look towards growth, the entrepreneurs settle on one business model that best fits their needs and looks to find steady, sustainable growth. Their goals may be more long term, looking to be a stable option for locals to work at and be a mainstay of the community.

What Makes Them Different?

While both startups and small business are companies that aim to grow and earn a profit, they differ in how they do that. They start from the same place: a person with an idea, but how that idea is realized goes on two different paths. Startup companies seek rapid growth and generally take additional risks, banking on the growth of their company turning it into a success. And as mentioned above, startups are typically designed to “shakeup” or “disrupt” an existing industry and become the new leader in the field. Small businesses – while they may be innovators, do so on a smaller or more local scale. The impact they make affects their community rather than a whole industry. Small businesses may want to grow, but their growth is typically on a smaller scale – one that continues to bring profit to the owner(s) without increasing the risk significantly.

While start-ups and small businesses can be found everywhere and in nearly every industry there are spaces where they are more commonly found. Startup companies are typically in the tech industry or in rapidly growing new markets (think electric cars, ride shares, streaming services for digital media, etc). Small businesses are sometimes considered “main street businesses” as they frequently make up the backbone of communities. From local coffee shops, hair salons, plumbers, gardeners, auto shops, day cares, etc. there’s bound to be a handful of small businesses that you support on a regular basis without realizing it. And those small businesses make an impact: employing nearly 60 million people across the US.

Another major consideration for startups and small businesses alike is the legal and tax regulations that will likely play a role in your business. Local, state, and federal guidelines will help you understand how much to set aside for taxes and fees. Some areas offer financial incentives for startups and individuals thinking of starting a business to help them grow and access resources that may normally be out of their current spending budget. Knowing what areas you need to be aware of can be daunting, so having an experienced team in your corner can be a huge asset.

A Note on Micro-Businesses:

Even though small businesses come in many shapes and sizes, there is one type of small business specifically worth mentioning: the micro small business. Regardless if your business makes $5,000 or over $1,00,000, micro small businesses are often a one-person show. Technically, micro small businesses can have up to 10 employees, but can also be solopreneurs, freelancers, etc. Micro small businesses balance a lot but bring a lot to the table in their communities and often fill a much-needed space that larger businesses can’t. Balancing all the hats an owner of micro small business has to wear can be a challenge – but there are several resources out there to provide assistance. They, like their larger small business counterparts, can grow and have an impact on their community – and can be very profitable.

Learn More:

Whether you are a start-up, small business, micro small business, or unsure where you stand, our staff is here to help. We can help you navigate the path of being a small business owner and can be there as your company grows and changes through its life. You can give us a call at (703) 912-7862 , send us an email at info@lemayandcompany.com, or schedule a meeting with one of our staff using this link.