For many people, establishing a business is a step toward personal and career fulfillment, sustainability, and financial freedom. These aspiring entrepreneurs often dream of becoming business owners or a co-founder and executives in their own companies.
These are great pursuits and with the right combination of mindset, personality, talent, and skills, these goals are achievable. However, it is important to go back to the basics. Particularly, it may be necessary to review exactly what type of an organization they want to establish.
With frequent news about a startup becoming a unicorn, or another being absorbed by a larger company, aspirants may be interested in launching one. Nevertheless, it is essential to determine if the business they are thinking of building coincides with the definition of a startup or if it qualifies as another type of organization.
Take those who want to start a grocery shop as an example. This article tackles the differences between startups, normal companies, and grocery shops.
What is a Startup?
American entrepreneur and business educator-cum-speaker Steve Blank talked about startups extensively. He developed the customer development model, which contributed to the conceptualization of the lean startup methodology (Blank, 2010).
According to Blank, “A startup is an organization formed to search for a repeatable and scalable business model.” Such business models are supported by customer development, agile development, and lean startup methodologies.
The combination of these methods allows startups to quickly implement and test every aspect of their business model, adjust according to what they learn, and operate using hypotheses, feedbacks, and scalability.
Most startups nowadays are tech-based because this is the current trend, as well as it is readily available for the implementation, feedback-gathering, and adjustment required by an organization that is looking for a repeatable and scalable model.
What is Qualifies as a Normal Company?
By the name itself, the term “startup” may be interpreted as a company that is just starting. Technically, this can be understood as true. However, there are important details that can contribute to how one can fully grasp the difference between startups and normal companies.
It is necessary to go back to Blank as he tackled the essential differences between a startup and a company. Blank (2014) noted that “a company is a permanent organization designed to execute a repeatable and scalable business model.”
If this sounds familiar, it is because both startups and companies are concerned with repeatable and scalable business models. However, take note that startups are in search of such models, while companies execute them.
The key to further understanding the difference is the fact that startups are “temporary [organizations]” (Blank, 2014). This is because these types of organizations are designed to find, develop, and perfect models that can be repeated and adjusted based on what a particular business needs.
The reason that startups are required in order to innovate business models is the fact that companies are permanent. They are more established, with a more cemented culture and practices, making it extremely difficult to innovate in them.
This is not to say that Blank undermines the ability of companies to understand innovation and to come up with new ways and practices. The fact that companies are more permanent, can mean that they do not have the tools to undergo the process.
However, companies can be equipped to handle innovation if they have policies, procedures, and incentives to work toward this goal. Looking at today’s companies, it is easy to see that many of them have arrived at a point in which they have the tools necessary to innovate.
For some, the solution is to absorb a startup business. Startups could also transition to become a company. So, in a sense, the notion that a startup is a budding company can be interpreted as true. Nevertheless, it is important to be mindful of the key differences between a startup and a company.
Where Do Grocery Shops Fall Under?
Given the definitions for startups and companies, individuals who are interested in launching businesses like grocery shops may be wondering it can be classified. Many might think that a small business can be considered a startup because most companies start small when they are starting. However, this is another misconception.
The United States Small Business Administration (n.d.) defines small businesses as a company that meets its numerical requirements depending on the industry, as well as general requirements for all industries.
According to SBA, “The Office of Advocacy defines a small business as an independent business having fewer than 500 employees.” After satisfying numerical standards, the organization should meet general requirements such as being a for-profit business, independently owned and operated, not nationally dominant in its sector, and physically located and operated in the U.S. or its territories.
To make the difference clearer, it is essential to mention that small businesses are companies. This means that its goal is not to innovate and develop business models, but to find an already-established model and execute it.
With the technicalities that mark the differences between startups, normal companies, and small businesses such as grocery shops, it is easier to understand it in a list form. The following provides an executive summary of the essential characteristics that make each of them distinct.
- Permanence – Startups are temporary organizations, while companies are permanent, no matter the size
- Size – Startups need to run on minimal resources which is why it has fewer employees, companies can be small, medium, and large enterprises. Startups can transition into companies, while small businesses can become medium and large ones.
- Business Models – Startups are made to search for repeatable and scalable business models, while companies execute such
- Ability to Innovate – Startups are designed to innovate, while companies may have more difficulty innovating
The Bottom Line
There are a lot of misconceptions surrounding startups, companies, and small businesses, which is why it is necessary to elaborate on their respective distinctions. Knowing the difference between these three can help aspiring entrepreneurs decide which direction to take their ideas and plans.
- Blank, S. (2010). What’s a startup: First principles. Retrieved from https://steveblank.com/2010/01/25/whats-a-startup-first-principles/
- Blank, S. (2014). Why companies are not startups. Retrieved from https://steveblank.com/2014/03/04/why-companies-are-not-startups/
- Small Business Administration (n.d.). Frequently asked questions. Retrieved from https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2016_WEB.pdf
- Small Business Administration. (n.d.). Size standards. Retrieved from https://www.sba.gov/federal-contracting/contracting-guide/size-standards