The other day, my business partner & I were having a very interesting discussion that centered around one single question:
What is the definition of a start up & how is it different than a small business?
The term ‘start up’ is thrown around every single day and, in my opinion, there is no set definition for what the term describes.
For example, I’ve heard the following ventures be defined as a ‘start up’:
- A 150 year old company began a new division of business. They defined this division as a ‘start up’ within their existing company.
- A blogger that created a media outlet centered around their online blogging defined themselves as a ‘start up’
- My friends mobile app company, which is less than one year old and has raised $5 million in venture capital
A great way to define the term ‘start up’ is to take a page from the book of one of the masters, Y Combinator founder Paul Graham:
“A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth.”
So, what’s the difference between a start up & small business?
Or, put differently: Why wouldn’t a small business want to be designed to grow fast?
Both a start up and a small business have a number of similar characteristics:
- Less than 10 employees, with usually no more than a couple out of the gate
- Volatile, if any, streams of revenue that fluctuate drastically month to month
AGAIN I ask you, what’s the difference between a start up and a small business?
My brilliant business partner came up with a great way to make the distinction:
A start up is a company that primarily relies on outside funding (angel investment, venture capital, etc) to fund operations & growth. A small business is a company that primarily relies on revenue (actual billable revenue to clients) to fund operations & growth.
What do you think of the distinction outlined above?
Aside from being the CEO at MKG Media Group, Mike is a dark beer aficionado with a healthy appetite for travel and pushing personal boundaries.
A proud graduate of Washington State University, Mike currently calls San Francisco home.