2018-01-31 00:00:00Business PlanningEnglishMake an informed decision and start your new company off on the right foot by understanding the difference between a startup and a more...https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2018/02/Coworkers-Discussing-Strategy-For-Startup.jpghttps://quickbooks.intuit.com/ca/resources/business-planning/what-makes-company-startup/What Makes a Company a Startup?

What Makes a Company a Startup?

2 min read

Not every business venture is a startup. If you’re considering starting a new company, it’s important that you understand the differences that separate a startup from a traditional new business. That way you can select which path best suits your personal goals and also determine how to proceed with important considerations such as funding, marketing, manufacturing, hiring, and other essential aspects of your business model and road map as a whole. Here are the key differences that should help you decide whether you want to pursue a startup or a more traditional small business venture.

Growth Strategy

The main difference between startups and traditional businesses is that startups are created specifically to grow quickly. Naturally, that means you already have a product or service ready to go that should be able to reach a large market. That’s why so many startup companies are in the tech industry. Computer-based businesses have access to a worldwide market, and often the software, service, app, or whatever the product may be is already completed and ready to be sold to a broad audience. On the other hand, a restaurant isn’t a startup because restaurants grow slowly by nature and you can only corner your local market. There’s nothing wrong with opening a restaurant, but you can’t take the same business approach as you would with a startup.

Funding

Traditional business ventures typically rely on loans and/or grants for funding, whereas startups tend to seek capital from angel investors and/or investment firms. Naturally, how your business is funded dramatically alters your approach to the business. When your company is funded by loans or grants, you have more control and you can proceed on your own terms. In the case of startups, investors often have expectations that must be fulfilled. Startup investors tend to play a more active role in the company than banks and lending institutions that simply provide funding and let you get to work. Both types of funding sources have their own pros and cons, so the best choice really depends on your business model.

Exit Plan

Because startups are usually funded by venture capitalists who generally care more about their return on investment than the actual business itself, you need an exit strategy if you plan to take the startup route. Investors want to know exactly how they’re going to be paid back with interest, so you need to incorporate your plan for profitability and a time frame into your pitch. If your plan is to simply make as much money as possible in a short amount of time, you can pitch the merits of your product or service and then offer a percentage of sales. However, if your plan is to still be running the business 15 years down the line, you may need to siphon revenue into paying off investors every month so you can have more freedom eventually. With a traditional business venture, you typically pay off your loan according to the agreed upon terms, and then simply run the business as you see fit.

View traditional business ventures as long, slow burns and startups as quick explosions. A startup can certainly turn into a long-term business endeavor, but generally, you must hit the ground running and have a clear-cut game plan. Traditional business ventures give you more room to breath and follow your own path. Consider your growth potential, funding style preferences and requirements, and your long-term exit strategy (or lack thereof). From there, you can make an informed decision on how to proceed.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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