Each year, many people start companies because they want to provide a service or a product that the world needs. Though the terms are sometimes used interchangeably, small businesses and startups are two different, very distinct types of companies that have different characteristics. Before you become the founder of your first company, let’s examine the differences between a startup and a typical small business.
What is a Startup?
A startup is a fledgling company that is built to scale into a larger model. Usually, a startup has an innovative idea in which many customers will be interested. The goal of a startup is to get mass adoption, far-reaching influence, and rapid growth. Most startups are tech companies, companies that create a new method of product delivery or distribution channel. In order to accelerate rapid growth, startups typically look for funding from investors. In the succinct words of businessman Steve Blank in 2010, “a startup is an organization formed to search for a repeatable and scalable business model.”
Startups prioritize long term growth over short term profitability, with the financial risk being taken by the founders and the investors. Some prominent examples of startups include Uber (ridesharing), Amazon (e-commerce), Snapchat (social media), Airbnb (hospitality), and Canva (graphic design).
What is a Small Business?
Small businesses are privately owned companies that focus on stability, steady profitability, and long-term sustainability. Unlike startups, a small business typically doesn’t take investor money, and serves a local community or a niche market. Your local retailers are small businesses: the locally owned coffee shop, clothing store, bodega, salon, auto repair shop, restaurant, landscaper, or dry cleaner is a small business. They get their money day-in, day-out from the local community and regional economy.
By definition, a small business is any company with 1,500 employees or less. 89% of small businesses employ fewer than 20 employees, and 98% of small businesses employ less than 100 employees. Small businesses are built for long-term consistent revenue, are risk-adverse, and are often family businesses that can be passed down from generation to generation. Owners of small businesses retain full control, exercising complete autonomy over business operations and decisions.
Characteristics of Startups
Companies that fit these descriptions are considered startups.
Growth Intent
One defining feature of startups is they aim for rapid growth, often exponential growth. Yearly growth goals are much much larger than a small business, often aiming for national or global growth. Adoption of the service or product is expected to scale, and profits come from obtaining the largest possible user base.
Small businesses focus on stable, steady growth, and explosive growth is measured on a different scale than that of a startup. Market expansion for small businesses may still be large, but the business may not be designed to scale quickly, so ramping up operations may take longer than with an investor-funded startup.
Startups focus on large Year Over Year (YoY) growth, anywhere from 50% to 200% or more, with a large decentralized customer base. Small businesses stay focused on stable growth, about 5% to 15% per year with a centralized customer base.
Business Objectives
Startups are searching for a scalable, repeatable business model that will innovate or disrupt the market. Once they have that service or product, their goal is rapid expansion and user acquisition. The startup must scale to a large size, and get far ahead of the competition. Profitability is often directly tied to market share, and becoming the top brand in the new or innovative business category.
Small businesses are tried and true business models with a proven track record of success. Most often, a small business serves a local community or industry niche, with a product or service that is better quality and value than competitors. The small business wants to grow, too, but it doesn’t necessarily need to be a national or global business. There are many types of businesses that can be classified as a small business, from the local restaurant to a regional manufacturing company.
Startups focus on exponential growth, eventually resulting in an exit of one type or another to enrich the founders and investors. A small business is built for long-term sustainability, steady revenue, and stability in every season.
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End Goals
For a startup, the end goal is usually an “exit”, where the company is acquired by a larger company, resulting in a large payoff for the founders and key shareholders. Another goal is an Initial Public Offering (IPO), where the company is publicly traded on the stock exchange, which also gives the largest shareholders a large payday.
Along the way, the startup is searching for a scalable business model, an ideal product offering, and a large customer base. The startup may pivot, or expand, but once it finds its perfect fit in the market, the goal is to become a dominant company.
Amazon started by selling only books, now they are arguably the largest e-commerce company in the world. Every startup is searching for a way to disrupt the market and provide something that changes the way people live in their daily routine.
Conversely, a small business may not be out to change the world, but they are there to provide an established product or service, better than anyone else in the industry, or in the local community. A small business isn’t looking to exit, though some business owners do end up selling to another company, usually a larger one, that lets them live comfortably after the sale. More often though, small businesses may be passed down to other people in the family as the founding owners get older and retire. The business remains a stable source of income and revenue as long as it is managed well.
Funding
One of the clearest signs of whether a company is a startup or a small business is how they obtain their funding. Startups generally rely on funding from venture capitalists (VCs) who give funding in “rounds” in exchange for equity in the business. After so many rounds of funding, a startup company may no longer be independently controlled, depending on the amount of equity that has been exchanged. Startups require a significant amount of capital to reach mass adoption and accelerate growth.
When startups are successful, the investors and shareholders profit greatly. The expectations on startups are for substantial returns on investment, sometimes 10 times the initial investment or more. Not every startup succeeds, and many startups fail, and are shuttered if they fail to reach the desired growth and profitability. The goal is usually to make a public stock offering, which leads to more capital for even more significant growth.
Small businesses get funding from personal savings, small business loans, traditional banks, or lines of credit. The growth for small businesses is a smaller trajectory than startups, but the founders do not give up any equity or ownership in the company. Any profit the business earns goes back to them.
Risk Tolerance
One of the biggest differences between a startup and small business is the level of risk tolerance that is associated with each type of business venture. Startups are designed to bring an innovation to the market that may not have been seen before, or is still new to consumers. The market for this product or service is still unproven, and there is a greater risk of the startup failing. Small businesses typically operate in proven markets where there is already a known demand. A small business is made to be more risk-adverse, and there are many ways to pivot, restructure, or downsize if cashflow becomes tenuous. Startups are built to scale quickly, and rely heavily on investment funding to keep operating, with the goal being explosive growth that brings stability and financial return for investors and the founders. About 80% of startups fail within the first five years due to lack of market adoption, cashflow issues, and other reasons according to a 2022 report by CB Insights. Only 50% of small businesses close within the first five years, according to research by NerdWallet.
What Type of Business is Right for You?
Should you start a small business or found a startup? There’s no right or wrong answer; the choice depends on your personal needs and business goals. If you enjoy focusing on a particular market or community, a small business is a good choice. If your goal is to become an entrepreneur and have a much larger customer base, becoming a startup founder is more suited to your ambitions. There’s no shame in choosing either path, they are both worthy goals for a visionary businessperson.
Summary
Startups are built to expand quickly, and small businesses are designed to provide steady, stable revenue. In many cases, startups become publicly traded companies once they grow large enough. Small businesses may remain in the hands of a family, being passed down to subsequent generations. Both are valuable types of businesses, but each is designed for a different outcome.
Pursue Your Business Administration Degree at Campus: A College Built for Entrepreneurs
At Campus, we believe that entrepreneurship isn’t just taught — it’s lived. That’s why we’ve built more than just a business degree. We’re a new kind of college, founded by an entrepreneur and backed by successful founders and investors who know what it takes to build something from the ground up.
Our two-year Business Administration degrees — including our unique concentration in Applied AI — are designed for aspiring founders who want real-world skills, not just theory. You’ll learn live from instructors who teach at top schools like Stanford, NYU, Yale, and UCLA, and connect with a personal coach who’s invested in your goals.
And if you’re looking to launch something while you learn, get inspired by The Grind, our series that gave students a chance to pitch, build, and scale their own business ideas — with feedback from real entrepreneurs.*
So whether you're planning to start a business tomorrow or just planting the seed today, Campus gives you the tools, support, and network to make it happen.
Ready to build something real? Apply to Campus today.
*Participation in The Grind startup is not guaranteed and may be subject to application, availability, and/or instructor recommendation. Outcomes may vary by student and are not indicative of future success. Please consult with Campus advisors for eligibility details.