When you think of an entrepreneur, you perhaps imagine someone pitching to venture capitalists. The two terms – ‘entrepreneurs’ and ‘startup founders’ are often interchangeably used. Many people think of startups while discussing entrepreneurship. However, entrepreneurship is more than tech companies and multi-million dollar fundraising in Silicon Valley. The local business owner in your neighbourhood – the café owner, the boutique retailer, or the independent consultant – is also an entrepreneur.
Before we dive into discussing the differences between startup founders and small business founders, let’s understand their similarities. Both small business and startup founders have the same passion to serve their customers and solve real world problems. Both the journeys are full of aspirations, dreams, and a desire to create a meaningful product for their customers. Yet, despite these commonalities, their business models, growth strategies, risk tolerance, and end goals differ significantly. Let’s explore what differentiates these two types of founders—and why understanding the distinction matters.
Vision and Objectives
One of the key distinctions between startup and small business founders lies in their vision and objectives. Startup founders seek to disrupt the existing markets or create entirely new ones. They are generally not complacent with the status quo and aspire to provide products or services that don’t exist. They often focus on scalable and high-growth business models that can rapidly expand and capture a significant market share. They aim to address large-scale problems with innovative solutions that can have a widespread impact.
Take the example of Airbnb founders Brian Chesky, Nathan Blecharczyk, and Joe Gebbia, who revolutionized how people book their stays during vacations, bypassing the existing players in the hospitality industry and bringing millions of homestays into the market.
In contrast, small business founders usually focus on serving a specific local market or niche. Their goals are often more rooted in stability and sustainability than expansive growth. Small business founders stick to existing products and services in the market and focus on refining them further. Their core aim is to build a solid, profitable business that provides a steady income and serves their community effectively.
Business Models and Growth
The business models and growth strategies of startups and small businesses vary significantly. Startups focus on rapid growth and scalability, and aim to gain market traction quickly, often at the expense of short-term profitability. They rely on funding from venture capitalists, angel investors, or other investors to fuel their aggressive growth strategies. A startup founder’s ultimate goal is to maximize their company’s valuation, usually through an Initial Public Offering (IPO) or an acquisition by a larger company.
On the other hand, small business founders prioritize profitability from day one, focusing on organic and sustainable growth. They typically fund their business through personal savings or loans, emplasizing consistent revenue generation and sustainable profitability. With a commitment to build loyal customer base, their goal is often to operate the business for a long time, potentially passing it to the next generation.
Risk and Uncertainty
The risk and uncertainty levels also varies significantly for startup and small business founders. Startups operate in an inherently high-risk environment, with a significant chance of failure. According to an estimate, merely 10% of startups run beyond their first three years of operation. Startup founders are expected to navigate challenges, setbacks and intense competition, as multiple companies globally often work on similar ideas. Only the first movers and well funded companies have a better chance to survive and get successful. In nutshell, startups thrive in a high-risk, high-reward ecosystem, where taking bold risks is essential for potential breakthroughs. Recall startups like WeWork, Zume, IRL, Freshly and Zeb pay and how they failed after making the buzz.
Small business founders encounter more predictable and manageable risks. While they aren’t immune from uncertain market and economic conditions, their focus on established markets and proven business models offers them more stability than startup founders. They work towards minimizing risks and creating a dependable source of income.
Operational Objectives
The operational objectives and daily routines of startup and small business founders also differ. Startup founders primarily concentrate on innovation, product development, and rapid scaling. In a challenging market with back-breaking competition, they make fast-paced decisions to meet growth milestones and adapt to market dynamics. A significant part of their role involves pitching to investors and fundraising, as startups require substantial capital to expand aggressively and acquire customers. Ant Group raised $14 billion in Series C funding, demonstrating the scale of investment needed to fuel hypergrowth.
On the other hand, small business founders prioritize day-to-day operations, customer service, and steady cash flows. Their focus is on delivering quality products or services and building strong community relationships. They analyse and focus on what’s working for them instead of constantly trying new ideas. Their primary goal is operational efficiency and customer satisfaction, which in turn strengthens their brand reputation and attracts loyal customers.
Final Goal
For startup founders, exit strategies are often a crucial part of their business plan. The ultimate goal is often to achieve a high-value exit, either through an Initial Public Offering (IPO) or an acquisition by a larger company. These exits can provide substantial financial returns for founders and investors but require meticulous planning and execution. For example, Facebook raised $16 billion in their IPO that valued the company at $104 billion, making Mark Zuckerberg one of the richest tech entrepreneurs. In one of the biggest startup acquisitions, Salesforce bought Slack for $27.7 billion. Founders of startups like Skype, Android, WhatsApp, LinkedIn, etc., have exited the business with significant financial gains.
Small business founders typically don’t have an exit strategy. Their goal is to grow the business sustainably, maintain profitability, and ensure its long-term success. When it comes to succession, they typically pass it down to family members, sell it to a trusted employee, or find a local buyer. Their focus is on ensuring the continuity and legacy of the business rather than seeking rapid financial gain by selling the business.
Conclusion
To sum up, while startup and small business founders share the goal of building successful enterprises, their approach, strategies and end goals vary significantly. From vision and growth strategies to risk tolerance and operational focus, they take distinct paths to success. If you’re considering launching a startup or small business, it’s essential to understand these differences and align your business plan accordingly.
