Difference between Startups & Businesses
At a startup competition held by Z Nation Lab in GTU, Ahmedabad, some of the juries identified a couple of techs enabled startups as a traditional businesses run through technology, and not as the proverbial startups. This got me thinking that maybe we need to segregate the two properly, since the startups and the ensuing jargons/lingo are pretty new to us, as compared to our Western counterparts.
What is a Startup?
A startup is a company which has the potential to grow and scale really fast and meets a particular market/consumer need. This is generally achieved through a viable business model around innovative product, service, process or a platform.
What is a Business?
A business is a tried and tested conventional way of selling/producing goods or providing services, i.e. manufacturing, trading, brokerage, services etc. All business involves risk, because of which the entrepreneur has the ability to earn super-normal profits.
How are Businesses different from Startups?
- The basic difference: Not all technology companies are necessarily startups. The vice versa also holds true. Only innovative companies/products/services which are exponentially scalable can be called as startups; the rest are businesses.
- Initial fodder: A startup usually needs high amounts of funding at different stages, as the growth trajectory and the needs of a startup changes swiftly. On the other hand, a good business is self-sustainable after the initial capital investment, and which grows slowly and steadily, through earned and reinvested profits.
- The untrodden path: The basic definition of running a business is taking a risk for which the entrepreneur might get a supernormal profit. Going by that definition, running a startup would be at least 10 times riskier, as most factors controlling a startup’s growth are relatively unknown. For this alone, the entrepreneurs and investors might get a super abnormal profit.
- Timelines: The life cycles of a startup and businesses are highly different. The startups of today are worth billions of dollars in less than a decade of being in existence, whereas a conventional business takes far longer to reach that valuation normally.
- Flexibility in the business: Startups are highly flexible and are able to change their business model, plans, and their core business in a blink of an eye (commonly known as Pivot – more about that in another article later), whereas it is very difficult for an established business to suddenly change and transform themselves into something else.
- From caterpillar to butterfly: Startups when established and after they reach a certain point, qualify to be called a business rather than startups, though not all businesses, when started, were startups
- The difference in initial Priorities: Right from their origin, startups focus more on scaling the product/service and reaching a larger audience as compared to a conventional business, which solely focuses on making a profit from day one itself.
Companies like Infosys or Microsoft were innovative businesses of their time, which exhibited exponential growth while creating tremendous value for their stakeholders in a short period of time. I wonder if these current businesses would qualify startups of that time, even though the term ‘startup’ was coined much later.
What’s are your views?
I am a serial entrepreneur with over a decade of experience in diverse conventional businesses. I’ve forayed into my first startup over a year ago and trying to learn the ropes of this exciting new world of opportunities.