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Covering entrepreneurship and business start up questions for non-residents and US citizens.


May 06 2012

How is a startup different from a small business?

by John Gordon | 21:05 GMT

One of the great resources for entrepreneurs on the web is Y-Combinator’s library of articles for startups. Included among the articles is a great piece on getting funding for a startup, part of which discusses the difference between a “startup” and a “small business:”

A company has to be more than small and newly founded to be a startup. There are millions of small businesses in America, but only a few thousand are startups.

  • To be a startup, a company has to be a product business, not a service business. By which I mean not that it has to make something physical, but that it has to have one thing it sells to many people, rather than doing custom work for individual clients. Custom work doesn’t scale.
  • To be a startup you need to be the band that sells a million copies of a song, not the band that makes money by playing at individual weddings and bar mitzvahs.

By this definition, a startup has a focus, a vision, a marketing plan that drives the company through thick and thin. A startup, like a small business, may start off with outside investment or may be internally-funded, but it looks to scale and eventually have the opportunity to either become a publicly-owned company by way of IPO or sell to a larger company in a way that the original investors (and those that joined along the way) can cash out their shares. The great majority of small businesses are lifestyle entrepreneurs or professional practices for which an exit strategy seems more like a dreaded thought, or at least a distant retirement dream



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