

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

So I've never been really clear on this.<p>What's the difference between starting a startup and starting a small business?<p>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?
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pg
The difference between a shrub and a redwood seedling. A startup is a company
that is just passing through small.

~~~
lionheart
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.

~~~
gcheong
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.

~~~
lionheart
That's a great article. Thanks!

I am definitely in the B&J camp, and this article really got right exactly
what that means.

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thesethings
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.

~~~
pg
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.

~~~
gaius
_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?

~~~
pg
There's an SEC rule that effectively forces you to go public once you have 500
shareholders.

[http://news.cnet.com/SEC-rule-may-nudge-Google-toward-
IPO/21...](http://news.cnet.com/SEC-rule-may-nudge-Google-toward-
IPO/2100-1030_3-5119504.html)

~~~
nickb
You can get an exemption for that though...

[http://www.businessweek.com/technology/content/nov2008/tc200...](http://www.businessweek.com/technology/content/nov2008/tc20081120_566312.htm)

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noodle
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.

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cabalamat
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_fish
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).

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

~~~
mechanical_fish
Well, yes. Perhaps I should have explicitly mentioned Rule Zero: "You can call
your company whatever you want. It's yours." :)

I'm not sure it's possible to objectively identify a _startup_ , except
perhaps in retrospect. To borrow PG's fun metaphor for a moment: You can look
at a tall redwood and conclude that it was once a seedling, but you can't look
at a seedling and conclude that it is destined to be a tall redwood. And
that's not just because some seedlings get eaten by beetles before they can
grow tall. Sometimes seedlings end up living for many years as bonsai trees,
where they are carefully pruned and tended in their tiny indoor pots.

~~~
tptacek
You're right, but I wish we could get past the value judgements.

A startup is a company that just started.

A small business is a company that is small.

A large business is a company that is large.

Why do we have to build a speculative growth curve into the term "startup"?

~~~
mechanical_fish
_Why do we have to build a speculative growth curve into the term "startup"?_

Presumably because, if the _average_ small business with no net profits went
up to a VC and asked for $3m on a valuation of $100m, it would be laughed out
of the room.

I'm inclined to agree with you, but AFAIK the word "startup" was _invented_ by
small companies which desperately wanted to convince investors that they were
absolutely determined to become large companies. So I'm not surprised that it
still carries that connotation... the real surprise is that the connotation is
wearing off. We're getting to the point where your proposed definitions sound
more and more reasonable. Because it no longer takes five years of advance
planning, an enormous staff, office buildings, multiple factories, and all the
other big-company trappings to scale up a small company, if that company is on
the web.

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yagibear
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.

~~~
ahoyhere
Selection bias.

Most small businesses _that visit their local business center_ are like that.

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speby
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).

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pchristensen
[http://www.pchristensen.com/blog/articles/hacker-vs-
engineer...](http://www.pchristensen.com/blog/articles/hacker-vs-engineer-
know-the-difference/)

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medianama
There is no difference

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

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sachinag
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.)

~~~
tptacek
37signals actually took funding.

~~~
ahoyhere
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.

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

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owkaye
"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.

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

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tptacek
Startups grow for the sake of growing.

