What Is a Startup?

A startup is a young company designed to grow fast and deliver innovative solutions that can be scaled to serve large markets. Startups aim to disrupt existing industries or create entirely new ones through groundbreaking technology or business models.

What sets apart a startup vs. a small business? Here's what makes startups special:

  • Big potential: You're shooting for the moon. Your product or technology could reach thousands or millions of customers.
  • Innovation: You're not just making something better – you're making something new. Maybe you've got a breakthrough in battery technology or a revolutionary manufacturing process.
  • Growth is everything: You're built to scale up fast. That might mean going from prototype to mass production in months, not years.
  • Venture funding: Instead of steady profits, you're focused on getting investment to fuel rapid growth. Investors bet on your potential, not your current revenue.

What Is a Small Business?

A small business is an independently owned and operated company that usually has a local or regional focus, generates stable revenue, and follows established business models. Small businesses prioritize steady growth and consistent profitability, often focusing on established markets rather than rapid expansion.

Here’s what sets apart a small business vs. a startup – small businesses are:

  • Steady and stable: You're building reliable, consistent income rather than massive scale. Success means steady profits, not a billion-dollar exit.
  • Traditionally funded: Instead of venture capital, you're likely using your own savings, bank loans, or revenue to grow. You keep control of your company.
  • Proven business models: You're improving on what works rather than inventing something totally new. Maybe you're opening an engineering services or consulting firm.
  • Lower risk, steadier rewards: Your chances of success are higher than a startup, but you're building a business to last, not to sell.

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. 

Startups vs. Small Businesses: Which Is Right for You?

Making the choice between launching a startup or small business comes down to understanding yourself, your goals, and your vision. Let's explore four key factors that can help you decide which path fits you best.

Risk Tolerance

How do you feel about betting it all on a big idea? With a startup, you might go months or years without a paycheck while developing your product. You could pour your savings into prototypes and still fail. If that gets you excited rather than nervous, startup life might be your speed.

Type of Business

Are you developing a breakthrough technology or business idea that could transform an industry? Is your product something totally new that needs big money to develop, like advanced robotics or innovative hardware? That’s startup territory. If you're planning to offer established services like engineering consulting, custom machining, or product design, the small business path probably makes more sense.

Timeline

When do you want to see results? Small businesses can start generating income within months and build steady profits for decades. If you're thinking "I want to build something I can own for life," lean toward small business. If you're more "I want to scale fast and sell in 5 years," the startup route might be your path.

Resources and Network

Take stock of what you bring to the table. If you have connections to venture capitalists and mentors and a team of tech innovators ready to join you, you could be ready for startup life. (There are also plenty of free resources for startups.) If you have deep industry expertise, strong local business relationships, and some capital saved up, you've got the perfect foundation for a successful small business.