Key Differences Between a Startup and a Small Business
When you're deciding between launching a startup vs. a small business, four major factors come into play: how you'll grow, where you'll get money, how you'll build your team culture, and what risks you're ready to take.
Growth Strategy
A startup is built for rapid growth. Most hardware startups aim to scale from prototype to mass production as fast as possible. You might start in your garage, but your business plan shows how you'll reach millions of customers in a few years.
Funding Sources
As a startup founder, you'll likely pitch to venture capitalists and angel investors. These investors bet millions on your growth potential in exchange for ownership in your company, often with the goal of an eventual IPO (initial public offering). For example, if you're developing new robotics technology, you might need $2 million for prototypes and testing before you ever make a sale.
Small business owners typically tap into personal savings, bank loans, or SBA funding. You might get a $50,000 loan to buy your first piece of equipment, then reinvest profits to grow. While you might take longer to scale up, you keep full control of your company.
Small businesses grow steady and strong. You might expand from one CNC machine to ten over several years, or gradually add new engineering services as you build your customer base.
Mindset and Culture
Startup culture runs on coffee and late nights. Your team might work remotely across time zones, pivot your product design three times in a year, and encourage seemingly crazy ideas. Everyone on your team is driven by the possibility of creating something revolutionary.
Small business culture focuses more on stability and community. You build strong relationships with customers and suppliers, perfect your craft over time, and create a workplace where people can build long-term careers.
Risks and Rewards
Startups are high risk and high reward: 90% of startups fail, and of those that survive, only 15% make an exit of $50 million or more. Yet hundreds of startups also reach unicorn status each year, reaching a valuation of over $1 billion. That’s a big reward, and it’s a big reason startup founders pour everything into their business.
Small businesses play a steadier game. Your engineering firm or machine shop might not make headlines, but you've got a better chance of success. While you might not become a billionaire overnight, you can build a very profitable business over time that sets you up to live the good life.