Ask HN: What's the difference between a Startup and a Small Business?

https://news.ycombinator.com/item?id=416885

by lionheart • 18 years ago

29 42 18 years ago

news.ycombinator.com

So I've never been really clear on this.

What's the difference between starting a startup and starting a small business?

Is it just what you call it? Or is there some definable criteria? Does a startup have to have investors and a plan to sell the company? I don't think so. But then what's the difference?

cabalamat• 18 years ago

A startup is a small business that has recently started up (duh), especially in a technology sector, that is capable of scaling into something big.

mechanical_fish3• 18 years ago

The point about scaling is key. If the business can't easily expand to handle more than a limited number of customers, and/or can't meaningfully be sold to someone else who can carry it on while the original owners lounge around on a beach in Argentina, it's not a startup.

That helps us to see why my consulting company, the (independent) pizza place on the corner, and your dentist's LLC are not considered "startups" -- and, indeed, why the majority of small businesses are not startups. On the other hand, once the pizza place starts selling franchises without limit, it becomes much harder to distinguish it from a startup (although people probably wouldn't use the word, because it's a tech sector word).

tptacek6• 18 years ago

37signals considers itself a small business, and has the scalability thing licked.

noodle• 18 years ago

the term startup tends to refer to growth-oriented new businesses. they can be small businesses, but they're small businesses actively trying to become not small.

pg7• 18 years ago

The difference between a shrub and a redwood seedling. A startup is a company that is just passing through small.

lionheart2• 18 years ago

So is a bootstrapped company that isn't taking investors and never plans to be sold but is planned to eventually grow to several million a year in revenue a startup?

Edit: Several can be up to 10 to 20 million. Technically this is more than the pay off to the founders of most successful startups, I believe.

pg7• 18 years ago

Sounds borderline, if several million a year is the upper bound on revenue.

Edit: I assumed by "several" you meant several. If you could actually get to 20m in revenue, that's starting to sound like a startup, assuming you had product margins rather than service margins.

gcheong• 18 years ago

Another way to look at is the "Ben and Jerry's vs. Amazon" model:

http://www.joelonsoftware.com/articles/fog0000000056.html

Sounds like you're more or less in the B&J camp.

mrtron2• 18 years ago

You love analogies more than a trucker loves his big rig :)

pg7• 18 years ago

They carry the most valuable cargo: information about structural similarities.

thesethings• 18 years ago

I believe Paul Graham once defined the difference as: a startup wants to (but doesn't necessarily) have "a significant exit," it either goes public, or gets acquired for a large amount. A new small business that aims to be sustainable, profitable, grow, etc, isn't a "startup," without the significant exit. Unfortunately I remember hearing this in a video or audio interview, so it's hard for me to search for this attribution.

pg7• 18 years ago

I wouldn't say this is the defining quality of a startup, but it is an almost inevitable consequence of the defining quality, which is growth. A fast-growing technology company will get acquisition offers, whether they seek them or not. And one that grows sufficiently large will have to go public, whether they want to or not.

Darmani• 18 years ago

http://en.wikipedia.org/wiki/Koch_Industries

gaius• 18 years ago

And one that grows sufficiently large will have to go public, whether they want to or not.

I'm curious, what is your reasoning here? Because it will be acquired by a public company (e.g. Microsoft or Google)? Or just because investors will want a means to exit?

tptacek6• 18 years ago

Startups grow for the sake of growing.

sachinag• 18 years ago

A startup is legitimately an investable opportunity for a professional investor. (Just because 37signals doesn't want money, doesn't mean that they're not a good candidate for a VC investment.)

tptacek6• 18 years ago

37signals actually took funding.

ahoyhere2• 18 years ago

But in a very, very different way than every other business that gets talked about here.

They were profitable first, became very profitable over time, and they took funding years later when their revenues must have been in the millions/year (while still being only a handful of people) - and the only reason they took it (they claimed) was to get access to Jeff Bezos, the investor.

yagibear• 18 years ago

Some examples of small businesses that aren't startups might help clarify the issue. When I visited a local small business advisory centre (in the hope of learn something to help my startup, before I understood this difference) the other founders who I met were selling (purportedly) gourmet dog food and therapeutic massage. Most small businesses are like that: providing goods or services to localities. Tradesmen, delis etc are other examples.

ahoyhere2• 18 years ago

Selection bias.

Most small businesses that visit their local business center are like that.

sutro• 18 years ago

The difference often manifests itself like this: startups make something people want; small businesses make something people want to pay for.

speby• 18 years ago

I would argue startups are a specific subset of businesses that initially are "Small Businesses" with the defining quality being the capability to scale to something much larger, obviously when faced with a market opportunity that allows it do so (whether that market is existing or is completely new).

Of course, the "term" startup is often used loosely but most often is used to define the usual: Tech-oriented, "innovative" businesses seeking to raise millions of dollars and eventually become companies that can make hundreds of millions of dollars (or billions) and can make the large exit (as PG pointed out above).

medianama• 18 years ago

There is no difference

If you think your startup isn't a (big or small) business - you are missing the point.

pchristensen• 18 years ago

http://www.pchristensen.com/blog/articles/hacker-vs-engineer...

nickfox• 18 years ago

A small business is making money... :o)

owkaye• 18 years ago

"A small business is making money."

If you mean generating a profit you're correct. Anything that's not generating its own profits is nothing more than a hobby. Twitter is only a hobby. So is Facebook. Neither are generating their own profits, they exist solely on funds provided by investors -- and that's not a business, it's a privately funded hobby.

When a hobby starts generating more income than expenses then maybe it has earned the right to be called a 'small business' or even a 'large business' depending upon where you draw the line in terms of scale, but until then it is in no way a business.

A startup is anything that's being started. Whether it's still a hobby or a business does not matter in the least. Some people may delude themselves by calling hobby startups 'businesses' but that doesn't make them businesses.

Ask HN: What's the difference between a Startup and a Small Business?

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