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Spot the startup: The difference between startups and small businesses

Written by Matt Westenburg

With more than 18 years of experience as a certified public accountant, Matt has helped companies develop & validate business models, raise capital and provide management expertise. He enjoys working with entrepreneurs who are passionate about achieving their goals and bettering the community. He was voted the Silicon Prairie “Service Provider of the Year” and has been recognized multiple times for his contributions to the local entrepreneurial community.

Business magazines and entrepreneurs alike celebrate the success of startup companies across the country, but what does that even mean? Startup businesses are usually pictured with young adults in hoodies gathered around a laptop, but there’s more to it. We’ll take a closer look at what classifies as a startup and how it’s different from a small business.

What makes a startup

Startups are all about innovation. What makes startups different from a new small business opening across the street is their commitment to fresh ideas. Technology is not a requirement, but it’s usually integrated into a startup business model. In addition to being a business classification, many people see startup as a state of mind. To them, it’s a way of viewing current problems and pursuing unprecedented solutions. Another key identifying factor for startups is their rapid development. Many of these companies either flourish or flop within a relatively short time frame.

If you’re a person who loves high risk, high reward scenarios and is willing to work hard, the startup business world might be a good fit.

Generally, startups are classified as such for the first three to five years. After the five-year benchmark, many startup businesses just become regular businesses. The transition generally coincides with then startups begin to show real profits. As the organization earns more profits, acquires more business and hires more employees, they start to segue away from the startup category.

Startups vs. small businesses

Small businesses can survive in relatively small, niche markets, and many thrive in these environments. Startups tend to have a broader focus, trying to reach large markets with their products or services. While small businesses rely on loans for financial support, startups tend to collect funding from investors or venture capital firms. This usually means startup investors have a say in how the business operates. Programs designed to foster innovative businesses capitalize on this idea by providing funding, mentorship and support for startup organizations. As part of the agreement with investors and financial backers, many startups have an exit strategy from the beginning. Most small businesses don’t have to worry about this until they reach success or they’re looking to sell.

If you’re a person who loves high risk, high reward scenarios and is willing to work hard, the startup business world might be a good fit. Pandora, Uber, Airbnb and Snapchat all became wildly successful businesses after beginning as startup companies. Start dreaming and start doing. You never know when your big idea will take off.

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