• Tamara

Startup vs Business

A startup is a business but a business is not necessarily a startup. This article explains the difference between a startup and a business

Startup vs Business

Steve Blank defines a startup as:

A human institution designed to create a new product or service under conditions of extreme uncertainty.

The word "new" refers to an innovation. However, as Steve Blank mentions himself, this term must be viewed from a broad perspective. In other words, the innovation can come from different aspects: the product or service, the revenue model, the distribution model, the processes, the target group, etc. You can check the different types of innovations in this article.

The important part is the "under conditions of extreme uncertainty". It's a bit of a tricky part. It means that there is currently no other company with the same Business Model (Business Model encompassing the different aspects of innovation) at growth or maturity on the market. This means, that a startup is an experiment, or even a series of experiments. At each stage entrepreneurs formulate assumptions and conduct market tests to prove those assumptions. To be successful, a startup idea needs to be proven Desirable, Feasible and Viable and the series of experiments concentrates on proving each point step by step while going deeper with each experiment.


Desirability Viability and Feasibility of an idea

A business, on the other hand, has already been proven to be successful by other company, and therefore, there is already an existing market for it. A business is a calculated risk but not undetermined uncertainty. 2 more points distinguish a startup from a business.

  1. A startup is scalable. Scalability is a term widely used in the startup ecosystem and investors are looking for "scalable" startups. However, the term is often misunderstood (by investors too...). Let's look at what it means. A scalable startup is one that doesn't require a lot of resources to grow and manage increasing demand. Resources here = costs. Basically, a scalable startup can increase its revenues without significantly increasing costs. However, one should be very careful here. A technology startup vs. a consumer goods startups will, inherently, have different scalability. That's why it's best to look at scalability within a product type. If your consumer goods startup is significantly more scalable than current businesses in the area due to new processes or distributions, your startup can be considered as "scalable" in this area.

  2. A startup requires financing. Although both a business and startup may have funding from FFFs (Friends, Family and Fools), crowdfunding and bank loans, a startup will generally raise capital through fundraising with angel investors and Venture Capital Firms. In return for financing, startups will give out equity stakes (or ownership), thereby diluting their own equity stakes in the company for the benefit of rapid growth. (We will explain the concepts of equity, valuation, fundraising in PART 8: Fundraising.