Startups are not small businesses.

And very little about a caterpillar tells you it will be a butterfly. 

Last year I heard a tech startup founder say, “Startups are simply small businesses with a bigger vision.” 

This is offensive to both startups and small businesses. And that founder is now looking for other work. 

A small business is a species of a company defined by the number of employees. Most are profitable and growing. So much to love, appreciate, and celebrate about small businesses - in the U.S. and other countries, too. 

The difference between a startup and a small business has nothing to do with size or scale. A startup is a different species altogether. 

A startup is a team searching for customers, but it’s a search not only defined by “more.” The journey to product-market fit while keeping a P.O.V. on scalability inside a business model is about customer discovery. 

It has a cash runway and can extend it by raising money via debt or equity. A startup has to show early indicators of success and progress - while keeping an eye on the long-term vision and potential. 

Which one is better? 

Not a good question. They are different. And the difference needs to be understood because founders get into trouble when they don't know what kind of species they have on their hands. 

This common misconception leads to problems down the road. A founding team looks at bigger established businesses, observing, for instance, a marketing department, an HR team, office space, sales operations, and much more. The mistake is to shrink these functions into very smaller versions of a larger counterpart. 

That’s what small businesses do. A startup on the journey to product-market fit is a different journey altogether. Startups are in search of a customer.