Any newly created business is technically in the startup phase, but the term usually refers to new businesses designed to grow quickly and meet a market need in an innovative way. You will not hear many service-industry sole traders referring to their business as a startup. Startup businesses often require the founders to establish the concept and create some interest before they seek investor funding and capital to push the business into operation.
What is the difference between a small business and a startup?
The key difference is scalability and growth expectation. While there is a huge amount of variation business to business, small businesses typically aim at a sustainable, long term offering with slow growth. Most small business owners want their ventures to be profitable very soon after they are established, and often they are the owner’s sole income.
In contrast, a startup can take years to become profitable or to create any income at all. They are typically funded with a larger investment from the founder(s) at the outset, and then they continue to scale with capital from investors. It took Facebook five years to make a profit, by which point it was already a massive website with millions of users.
The other main difference is the business strategy employed. A startup is typically centred around an innovation. The reason for this is that unless you are doing something nobody has done before, or you are doing something in a very different way, it’s unlikely your business will capture a significant segment of the market in a short period of time. Small businesses, on the other hand, compete on service offering, on price, on value-adds, on quality, on reliability and on convenience. They typically carry significantly lower R&D costs and don’t require the experts that a successful startup needs to be successful.
What are some examples of successful startups?
Examples are all around, and you have probably interacted with many on a daily basis. While they are now established businesses, the most well known and valuable startups include:
- Uber: the app that killed the taxi industry. Uber offered a cheaper, more convenient alternative to taxis which utilised innovative software and made finding a ride simple and affordable.
- Airbnb: an affordable alternative to hotels and hostels. Airbnb connects people looking for a place to stay with people looking for someone to rent from them short-term.
- Dropbox: one of the first easy-to-use cloud storage/transfer systems. Dropbox revolutionised the way individuals and businesses accessed, stored and shared their data.
- Snapchat: a revolution in instant messaging. Snapchat allows users to send images to each other with a timer before they disappear forever, creating a casual, fun instant messaging experience that revolves around sharing your life.
- Spotify: a streaming platform for millions of songs. Spotify took the iTunes model and removed the ownership aspect, allowing you to listen to songs without purchasing them. There are free and paid versions available and artists see a share of the revenue.
- Facebook: the ultimate social network. Facebook eclipsed all of its competitors to become the go-to social media website, now for almost 2 billion people.
- SpaceX: private space exploration in the hands of America’s greatest innovator. Included here to act as a counterpoint to the online startups above, SpaceX is Elon Musk's successful attempt to build a private space exploration company from the ground up. They have gone on to make many engineering breakthroughs, including landing a rocket on both sea and land after launching it into space.