What is the difference between a startup and a small business?

The terms "startup" and "small business" are often used interchangeably, but they refer to different types of ventures, especially in the context of entrepreneurship and business growth. Here are the key differences between startups and small businesses:

1. Purpose and Growth Strategy:

- Startup: A startup is a young company founded by entrepreneurs with an innovative idea or concept that aims for rapid growth and scale. Startups typically focus on disrupting existing markets or creating entirely new ones. They often seek venture capital or angel investment to finance their growth and expansion.

- Small Business: A small business is generally a more established, traditional enterprise that offers goods or services to meet the demands of a local market. Small businesses aim for steady and sustainable growth rather than rapid expansion. They may or may not seek outside funding and are usually financed by the owner's savings or loans.

2. Innovation and Technology:

- Startup: Startups are usually associated with cutting-edge technology, innovative products, or disruptive business models. They often leverage technology to differentiate themselves from competitors and to address market needs more efficiently.

- Small Business: Small businesses may not rely heavily on technology or innovation as a differentiator. Their main focus is often on providing a reliable product or service to their local customer base.

3. Risk and Failure Tolerance:

- Startup: Startups are often considered riskier ventures due to their unproven business models and high growth expectations. They have a higher failure rate compared to small businesses. However, successful startups can achieve significant valuations and market presence.

- Small Business: Small businesses, while still carrying some risk, generally have a more stable foundation and are less likely to fail. They may have lower growth potential, but they also tend to have a more predictable revenue stream.

4. Funding and Investment:

- Startup: Startups typically raise external funding from angel investors, venture capitalists, or through crowdfunding platforms. They often go through multiple funding rounds to fuel their growth and reach profitability.

- Small Business: Small businesses are more likely to be self-funded or rely on traditional bank loans. They may seek funding from family and friends or use personal savings to start and run the business.

5. Time Horizon:

- Startup: Startups have a shorter time horizon to achieve significant growth and scale. They often aim to grow rapidly and capture a significant market share within a few years.

- Small Business: Small businesses have a longer time horizon and may operate indefinitely, providing goods or services to their local community.

It's important to note that these differences are not absolute, and some businesses may blur the lines between startups and small businesses depending on their specific characteristics and growth trajectory. The distinctions between the two terms have evolved over time, and there is no strict universal definition, but the concepts outlined above generally hold true.