Starting a Small Business vs Starting a Startup: what’s the difference?


Not all businesses are created equal. The guys that started Airbnb, or the guys
that started Slack- set out to build a multi-billion dollar company that would IPO or get acquired
for an insane amount of money. Those are the entrepreneurs that we (mostly)
hear about, and that we look up to, and that’s fine. Who doesn’t want to build a business that
transforms the world? But the story of how they built their businesses
doesn’t necessarily apply to everyone. Not all businesses are Amazons. Not all businesses are Facebooks or Twitters. While these companies started in garages and
dorm rooms, they were able to raise multiple rounds of venture capital (mostly from Silicon
Valley investors) and were able to fuel their exponential growth because they were tackling
an insane marketing opportunity- with a new, nonexistent or highly innovative approach. The problem we often see is that many small
businesses try to follow the exponential-growth-VC-funded approach, simply because it’s the stuff that
we hear about, and we assume ‘that’s the way things work.’ It’s not. I like to draw a line here- between the blockbuster,
unicorn- Silicon Valley-type of startup, and the smaller startup, the company that could
become a $10-20 or even $50 million company. But not a $1 billion unicorn. There are different rules for each one of
them: from fundraising, type of investors, recruiting team, and co-founders… Terminology is confusing here. They are both startups. They are both small businesses, at some point-
but I’m just going to call these group startups, and these group small businesses- and get on
with the video. So this is starting a small business vs. starting
a startup. We are dealing with this reality check
today. We started Slidebean as the ‘startup’ kind
of company. If you don’t know us, we are an AI-powered
presentation platform. We built an algorithm that turns this bunch of images and text, into
this fully designed slide. Back in 2014, we felt the presentation market
was up for the taking. We thought we had what it took to take PowerPoint
down: aspiring to 500,000,000 PowerPoint users worldwide. It’s not that simple. We saw a lot of similar companies, with excellent
and smart founders, fail at this attempt of being the next PowerPoint. We have a cool product, an incredible follower
base- over 400,000 people watch or read our content every month- but we are by no means
that company we set out to build- which can make you feel like you failed as a founder. On the other hand, we’ve generated millions
of dollars in revenue, out of a company that three guys started in good old San Jose, Costa
Rica, and by a lot of measures that is a fantastic achievement. The message I am trying to bring here is-
we should be more aware of the companies we are starting, and understand the paths we
can take to get them to where we want them to be. By the way, a small but influential group
of entrepreneurs have started talking about the success stories of ‘small businesses’
in the tech space, to shed some light on the entrepreneurs that don’t make headlines but
have been able to build multi-million dollar companies that employ dozens and sometimes
hundreds of people. You should look into the Startup Therapy Podcast
and the Baremetrics blog. Big fan of both of them. Here are some characteristics that can help
you determine the type of business you are creating: Some examples-
Are you providing a service that requires humans, meaning, employees on payroll? Then you are probably on this side because
you will need to scale your staff to scale your revenue, and that usually leads to thinner
margins and slower growth. The startup category of business is usually
software or tech-related. That means that once the software is built,
millions of people can use it without requiring a proportional amount of employees. If you are replacing an existing manual process
with tech, then you might be on your way to the unicorn type of business- but you need
to be aware how much money can be made with this, which will dictate your business size. Investors putting money on the startup kind
of business, at the earliest stage, expect a 10x return of their investment. That is if you raise $500,000 at a $5MM valuation which represents 10% of the company, in exchange for those $500K they will expect your business to be worth
$50MM within 5-7 years. It doesn’t need to be $50MM in sales, but
someone must value it at $50MM, either a new round of investors or a potential buyer. If that metric is not met, then the investors are not getting the money they expected out of this investment. That’s another difference; these investors
expect you to sell the business, liquidate assets so that they can get their money back
quickly. They’ll prefer that to the alternative: collect
a percentage of your dividends over years or decades. Doing an IPO, or initial public offering-
which means listing the business on a stock exchange is another way for investors to get
their money back- but IPOs are reserved mostly for large, $100M+ companies. It’s critical that you understand your own
business category so that you don’t waste time approaching the wrong type of investor. If you are starting a development services
company, or a growth marketing consulting firm, for example, you should not waste time
looking for startup-type investors. Again using the term ‘startup’ as I defined
it earlier on. In those cases, you probably want an executive
type of co-founder, that brings the capital and the client network for say, 50% of the
company. You are equal partners; you provide the talent
and manage operations. That relationship is totally doable. You may also look for friends and family funding. It might be possible to raise $100,000 from
people that you know, and that believe in you- but defining the right business size
will set the right expectations as to the risks and potential rewards of their investments. What you definitely don’t want, is raising
a multi-million dollar seed round only to find you couldn’t scale as fast as you expected. On one end, you might have a smaller-than-expected
business that employs a few people and generates some profits and could continue to operate
happily, but on the other hand, you have a group of unsatisfied investors pressuring
you to grow more. Whatever route you choose, make sure is something
you love doing. You’ll be doing it day and night for years-
and it will become a significant part of your life and your professional career. Chances are, if you succeed, you’ll be associated
with the company you built forever, in one way or another. Alright, so as always, if you want to take
our product for a spin- you may sign up with the link below. The first 25 people to sign up will get a
free 3-month period on the platform. Also- if you become a Slidebean subscriber
or if you already are one, I have free office hours available for our users, so just ping
our team and they’ll provide you with access to my calendar. Thanks a lot for watching- see you next week.

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20 thoughts on “Starting a Small Business vs Starting a Startup: what’s the difference?

  1. Excelente video Caya. Consiso e informativo y felicitaciones por ese gran crecimiento de su compañia en tan poco tiempo en un mercado tan competitivo. Orgullosamente costarricense.

  2. I didn't understood the part where you say that staff is a metric of small business, because Uber is a unicorn and is depedent on staff, because without staff they wouldn't exist, like Fiverr… Can you explain better? Awesome video, btw.

  3. amazing video like always, I watched a lot of vc/startups related content on YT but yours is really really dope. Thx

  4. We all aspire for the startup Amazon dream, however, we have to face reality. It’s better to succeed as a small business first, then you can look to grow to that next level. It’s no good to raise all that money, burn all that money, and end up eating only ramen noodles and having to start all over again. Sounds great in Forbes magazine articles, but, if you want a good work-life balance and a family, that’s probably not the way to go as 99% will crash and burn.

  5. What do I do if I want to raise money for an entertainment company that produces stage shows, films, and a theme park?

  6. thanks again really useful as usual. I do have a question about the registration of the brand (company name): is there any benefit (or advantage) for any of the founders to register the name of the brand under his/her name? (instead under the company itself?)

  7. WHat happens in a situation where small businesses pivot to become "start ups".. in other words, service compnay evolvs into a product company

  8. Great video! A new follower of your content. My gosh you guys have the feel and knowledge of a unicorn startup! Learning so many things from you guys

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