Are you a small business or a startup?

Does what you call your business even matter?

This post explores the difference between a small business and a startup and how what you are building impacts early decisions.

Entrepreneurship can take different forms. Both small businesses and startups have an element of risk when they start. Both begin with an idea, need a business plan and early funding, and strong leadership to create a viable business. But success and the means to achieve it differ. 

What do you want to build? How will you grow your business? Who will you partner with? What does success look like? How you present your business to customers, employees and the financial community matters. 

Small business and startup defined

The U.S. Small Business Administration (SBA) defines a small business as “a for-profit business of any legal structure, independently owned and operated, not nationally dominant in its field." The SBA further defines what a small business is by industry, through detailed size standards for total income, employees, and other factors. Industry limits differ; annual revenue for software publishers tops out at $41,500,000, while Bed & Breakfast Inns can make no more than $8,000,000 to be a small business. Government programs, such as SBA loans are earmarked for small businesses which meet the SBA criteria. 

The definition of a startup is less quantifiable. 

“A startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed,” Neil Blumenthal, Warby Parker CEO.

“A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.” Eric Ries, The Lean Startup.

“A startup is a team of entrepreneurial talent developing new innovations, in identifiable and investable form, in progress to validate and capture the value of the created innovation - with ambition to grow fast with a scalable business model for maximum impact.” Startup Commons.

How startups and small businesses differ

A focus on rapid growth through iteration and innovation is at the heart of being a startup. Startup investment is tied to the expectation of scale and massive returns. The level of risk, and potential reward, are very different. 

When do you stop being a startup?

Startups grow into scale-ups, and from scale-ups into corporations. In The Startup Owner’s Manual, Steve Blank defines a startup as the search for a business model and a company as the execution of the business model.

It’s the transition to a market-validated business model that moves the company into scale-up mode. Significant investor funding, new locations, more than 100 employees, and increased revenue, are signs that your startup is moving on up. As startups transition into scale-ups, more repeatable processes, structure and hierarchy come into play.

Model from Startup Commons

How does Fractionalist work with startups?

Working in an environment with time, resource, and cash constraints requires different leadership skills. The Fractionalist team specializes in the startup to scale-up phase of growth. We work alongside your team, identifying ways to accelerate the achievement of your goals. An outsourced or fractional leader does the same kinds of tasks that a full-time CxO would do, but on a part-time, program, or project basis.

If you’re a startup in the process of validating product-market fit, fundraising, or looking for new ways to grow your business, we’d love to meet you!