Ask HN: What's the difference between a Startup and a Small Business? | Hacker News Reader

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

29 pointslionheart42 comments

So I've never been really clear on this.

What's the difference between starting a startup and starting a small business?

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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The difference between a shrub and a redwood seedling. A startup is a company that is just passing through small.

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.

Sounds borderline, if several million a year is the upper bound on revenue.

Edit: I assumed by "several" you meant several. If you could actually get to 20m in revenue, that's starting to sound like a startup, assuming you had product margins rather than service margins.

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.

That's a great article. Thanks!

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

You love analogies more than a trucker loves his big rig :)

They carry the most valuable cargo: information about structural similarities.

I agree - they can present many nuances and present a higher density message.

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.

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.

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?

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...

You can get an exemption for that though...

http://www.businessweek.com/technology/content/nov2008/tc200...

http://en.wikipedia.org/wiki/Koch_Industries

Only works if you don't give employees stock, which in turn only works in old industries like this.

SAS Institute is the world's largest private software company with over a billion in revenue and no stock options (http://harvardbusinessonline.hbsp.harvard.edu/b01/en/common/...)

It's too bad the use of "the exception proves the rule" in cases like this is a solecism, because this would be the perfect time for it. SAS is the closest thing to an old-style industrial company in the software business.

(In "the exception proves the rule," proves is used in the older sense, meaning to test, not the newer sense, meaning to establish.)

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.

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.

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).

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

Well, the other thing about a startup is that it just ... started up. You can't be a startup forever. At some point you're just a business that started up awhile ago, and obviously at 12 employees, 37signals can't call itself anything but small.

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.

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"?

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.

Perhaps the term "startup" is, at least in part, partly a marketing term these days just like Web 2.0.

"licked"? How does 37 Signals(!) have any chance at scaling beyond the relatively tiny business they have now?

That's a strange question; 37signals is a 7-8 figure business with perhaps tens of thousands of customers all driving monthly recurring revenue; they're profitable, they have an infrastructure to build new products faster than their competitors, and they have one of our industry's great brands. And they remain a "small business" (they're, what, 15 people now?).

In the context of this thread I interpreted your comment to mean that you think 37 signals is on track to become a much much larger company. From 5-15 million/year to 50-150 million/year and beyond. I think that is highly unlikely to happen. They're a trendy software boutique with a loyal but relatively tiny customer base.

Many large companies don't have 15 million customers, especially in a single year. In fact, most public software companies don't.

The difference between, say, Salesforce.com and 37signals is that nothing at Salesforce gets done without:

* a 10 person dev team

* a 5 person QA team

* a development manager

* a QA manager

* a director of engineering

* a VP/engineering

* a technical product manager

* a product manager

* a VP/product management

* 3 dedicated sales engineers

* an account manager

* a regional district manager

* a VP/sales

* an SVP/sales

* a marketing/communications person

* a marketing manager

* a PR person

* a VP/marketing

* an accounts receivable person

* a CFO

* and I could keep going...

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.

Selection bias.

Most small businesses that visit their local business center are like that.

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).

http://www.pchristensen.com/blog/articles/hacker-vs-engineer...

There is no difference

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

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.)

37signals actually took funding.

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.

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

"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.

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

Startups grow for the sake of growing.

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