When I hear the word startup the image of some youngsters working in a cool environment for 5 days of the week and hanging with venture capitalists in restaurants and clubs for meetings comes to my mind. And when the same mind hears the word business, it converts the image to someone working hard to earn profits right from the very first day of starting an entity. While this imagination can be entirely wrong, we have tried to put some light on the difference between these two frequently used words.
The business model of a startup is mainly based on solving a problem and while opening a business maximum consideration is given to profit. Take for an example, someone looking to start a clothing related business, he/she will target the audience by setting a shop or a showroom on the main road where the gathering is maximum. The main purpose of this business will be to sell products which fulfill customer’s satisfaction giving maximum profit to the owner.
In a startup, the person will look to provide some solution for people who like to buy clothes of their choice by setting up an online website where users can customize clothes according to their need. After making a good name this startup will look to generate profits by adding further innovations.
Startups look for fundings very differently than most small businesses. Startups mostly rely on money that comes from angel investors or venture capital firms. Small businesses, on the other hand, may rely on loans and grants. A venture capital tends to play a more active role in whatever company is doing but in businesses, investors are not that active.
Startups are different from businesses primarily as they are designed to grow faster. They are designed to sell something to a large market which is not same in case of business. For operating a successful business, you don’t always need a large market but for startups, it is not easy to remain in the market with a narrow approach. This probably is the main reason why most startups are technology and internet-based as the reach of these is far more than physical stores.
An exit strategy is also something that defines your vision. If you are someone who wants to operate your plan in your own way and don’t want someone else to interrupt you in the exit planning, you are operating a business. In a startup, whether big or small, VCs need an exit strategy as they need to maximize their ROI and if you are pitching them without exit plans, you are most probably giving them a signal to not invest in your startup.
In short, we can say that there is a lot of difference between the two, and each having its own benefits.