Startup and Small Business Venture, the difference?
The key differences between a startup and a small business venture
You have probably heard the term ‘startup’ if you are working in the creative sector. You might have heard some of your work colleagues sharing their desire to start a startup to pursue their new idea so as to hit it big like Steve Jobs, Warren Buffet or Elon Musk.
Despite the growing number of startups in the UK over the past 5 years, it is strange to see that many people still fail to understand the basic difference between a startup and a small business venture. This article tends to explain the key differences between a startup and a small business in detail.
1.Acquisition of funds?
There are different sources of funding. Other than the scale and strategies adopted by startups and a small business venture, the way through which both acquire funds differs quite significantly. Startups seek reliable angel firms or venture capitalists to fund their business ideas whilst small business ventures rely on loans and funds which they usually receive from banks.
Even more interesting is the fact these venture capitalists actively seek an influential role in the startup they have invested in. Small business ventures, on the other hand, are bound to report back to the bank they received their loan from as part of their covenants.
Venture capitalists have invested interests in the startup, so they will always tend to provide fruitful business advice to their investee as they are the ones who are bearing high risk. Moreover, a young entrepreneur who just stepped into the market with zero experience and little to no expertise gets to enjoy business counselling from the experts who have extensive prior experience of investing in and managing different types of businesses.
Speak to your startup accountant or business accountant to make sure your business is prepared for fundraising. If you get financed using a loan, your accountants will help you design effective loan covenant trackers to keep track of any major issues.
What was in your mind when you first thought of setting up a business? Did you have a vision in mind or did you just plan to pocket a good amount of money, gain extensive market knowledge and the experience of doing business? Did you plan an exit strategy before beginning? There is a high probability that venture capitalists can simply refuse to invest in your startup if you don’t have an exit strategy planned early on.
Venture capitalists only invest when they are promised a very high ROI, and they believe that a planned exit strategy has the potential to get them the desired ROI. You as a startup owner, for instance, decide to dedicate your attention to the business for the next 5 years, and your number one priority will be to ensure that you generate a hefty amount of profits over the years to pay off your investors or any party who has provided you funds or loans previously.
3.Approach to growth?
Unlike traditional businesses, startups have an edge when it comes to the pace at which they can potentially evolve. This depends on how much startups operate differently from traditional businesses in the market. Modern-day businesses have set business models to follow with little need for innovation and therefore competition is strict and growth can be hard to achieve.
As a startup, you are required to prove the viability of the product by targeting a small market, working on building a customer base and validating the business model. This also means that if successful the business will experience huge growth due to low market competition.
This might be the reason behind the unprecedented rise of tech startups over recent years. They have the capability to reach larger markets and get them under their service radar without worrying about time, geographical or cultural barriers. A person doing business in London can sell and deliver their product to anywhere in North or South America. These qualities help startups get an edge over other traditional businesses operating in the industry.
However, your product reaches heavily depends upon what you are selling and it is not every time that tech startups are successful in penetrating large markets.
Why is a startup the best option for you? Understand the right reasons.
From the past few years, large companies have been trying to acquire startups as a means to increase their revenue and product offering, this strategy is used as a quick means of expanding. When might a startup be a better option than the traditional small business:
1. You believe your product or service has an innovative spark
Giants like Facebook, Twitter and Uber are leading the global market for a reason, they began as tech startups but eventually turned into big corporations overtime just because they worked towards their vision. The reason they have been huge successes is due to their innovative new ideas and new business models.
Facebook, acted as a catalyst to promote the use of social media around the Globe, they developed their own user-friendly social media platform and were able to penetrate the market of billions. Now, we hardly find any person, business, a non-profit organization who does not have a social media account.
2. You want to innovate the world
The digital age has brought about rapid innovations in the business world, however, the trend of innovating the business internally is gradually being replaced by practices of large organizations acquiring startups and relying on them to introduce innovation the way they want.
This might be the reason behind many startup founders launching their businesses with a planned exit strategy to sell out their business to big businesses or launch their shares on the stock market when the time comes.
3. You believe that you are calm, consistent and hardworking
If you think you are one of those people who gets easily bored with something after putting in a lot of time and effort, then a startup might be the best option for you. A startup option is also suitable for those individuals who are experimental and innovative in nature.
Setting up a business requires you to have a strong will to stay and endure whatever is coming up to you and burn the midnight oil quite often, maybe even on a regular basis, but that depends upon the nature of your startup.
If you think you will not able to cope up with the nerve-wracking stress and endless complications, then starting a business might not be suitable for you.
4. You try to give in your best every time
Do you feel restless even after achieving something just because you didn’t achieve enough or you believe you had the potential to do it even better, then it’s a sign that you can be an extremely successful entrepreneur? Being an entrepreneur means that you feel uncomfortable staying in your comfort zone for a long time and feel the sudden urge to make this world a better place to live in.
Clear House Accountants are specialist Accountants in London who have been working with creative startups and traditional businesses, helping them build effective finance functions, business models and growth solutions. Speak to us to learn more.