While a startup may operate like a business, it doesn’t mean that it should necessarily be treated like one. Although the goal is to make a profit and to hopefully bring a good or service to market, it may not quite be there yet. What are some other differences between a startup and a business?
A Startup May Not Have a Full Product or Service to Offer
In many cases, a startup simply has an idea for a product or service that it wants to offer. For instance, it may want to create a spacecraft that can reach the nearest star in 25 years. However, the technology to do so is not yet within reach. Therefore, it may be relegated to looking for funding that may facilitate research into developing a functioning product.
Startups Are Generally Reliant on Outside Investors
While most businesses rely on loans or other types of outside funding, the revenue it generates can typically repay those loans. With a startup, the only way an investor may get repaid is when the company goes public or eventually gets sold to another company. In some cases, startups may be funded entirely with whatever savings the founder or founders may have or by credit cards and other personal loans. It is rare that a startup makes a profit for years at a time if at all during this phase in its development. It is also possible that the founder or founders use investment money to pay themselves while they grow the business.
Startups May Have Little Formal Structure
While this is not always true, a startup tends to have a less formal and fluid structure. They may be structured as a sole proprietorship or some other pass through method as opposed to operating as a corporation. In the event that they are structured as a corporation, there may not be much of a hierarchy other than the founder and maybe an employee or two. It is also unlikely that a startup will have a formal office space, human resources department or any type of formal governance of its operations.
Startups Don’t Have the Resources a Business May Have
A startup generally doesn’t have the track record required to get capital from a bank, the connections to get into retailers or the distribution needed to sell to a wide audience. A business will have at least two of those if not all three. Startups generally focus on gaining publicity through giving away products for free or other low-budget marketing strategies as a way of gaining awareness for their ideas. A true business may have a dedicated marketing department that allows them to run a more traditional marketing campaign through multiple channels.
At one point in their existence, all businesses were merely startups looking to gain traction in the marketplace. However, a successful company generally cannot thrive if it only has one person working out of a garage. At some point, it will need to become a sophisticated operation that knows how to cater to its customers and grow its base of connections and financial resources.