There are a few differences between startups and small businesses – and most come down to perception by customers, those within the business and the industry.
“I’ve launched a startup” – there’s a certain smugness we’ll allow in anyone uttering these words because, ever since digital technologies allowed new entrants to crop up in established industries or create brand-new markets based on a creative idea, the word ‘startup’ has come to be shorthand for ‘innovator’.
Unless you’re looking to be acquired by a larger entity, however, or are basing much of your future on being awarded funding of some kind, there is a point in every startup founder’s life that requires the big decision: to evolve into a small business or not.
Compared to a startup, which some experts define as an organisation in search of a scalable and stable business model, small businesses tend to have figured out their business model and are focused on driving long-term profitability. A small business doesn’t have to remain a local shop, but generating a more predictable revenue stream allows those within the business to concentrate on creating more value for the customers they serve, rather than on ‘disrupting’ a particular industry.
Of course, there’s no magical moment when every startup graduates into a small business. The journey will look different for each, depending on a wide variety of factors, particularly the sector in which it operates, its customer needs, its ability to navigate change smoothly, and the addressable market for its products and services. That said, there are a number of ways that entrepreneurs can keep tabs on whether they’re on track to making the transition, or if they have more work to do in the way they run their firms.
If you haven’t already, look at some of the markers outlined below and, if you’re intention is to become a true small business, grade yourself on how far along you really are.
The very nature of launching a startup means you don’t have a track record to impress potential customers. That means, at least in the earliest days, almost everyone is a prospect – you’d best have your elevator pitch ready every single time you step into the elevator or duck out for a coffee.
In some situations, startups don’t even generate revenue during the early days. Instead, they may offer a free service of some kind in order to build up a critical mass of users. There may be ways to monetize an audience down the road, or the startup may have to include a paid version of its existing offerings.
Small businesses have largely transcended the need for ‘loss leaders’ or other approaches to getting their foot in the door.
They have managed to learn enough about their prospects to convert a portion of them into paying customers. More importantly, they continue to nurture those relationships to a point where they can grow the volume of business from their best customers. The relevance and value they bring to those customers means they’re not having to pitch over and over again. Instead, they become a partner for their customers, responding to and even anticipating their needs.
Startups talk about ‘scaling’ a lot, which means they want to grow without necessarily increasing overhead – headcount and office space seem like the luxuries of a large business. Books like The Lean Startup have become highly influential by advocating a tightly-run ship, with the founders accomplishing a lot with a very small staff.
Small businesses still won’t hire senselessly or spend needlessly, of course, but they have established themselves to a point where they can afford to better service their customers with investments in headcount, office space and systems.
Startups often get attention by offering something special that can be summed up in no more than a few sentences. It could be a new technology that solves a common challenge, or a novel way to do something that was formerly manual and time-consuming. They may also have a mission statement, but more attention is likely paid to their elevator pitch and speculation about what their growth potential could be.
As small businesses mature, the way they are recognised, remembered and appreciated by customers begins to look more like what you’d associate with your favorite clothing, restaurant or home electronics company.
In other words, they have built a true brand which has made an emotional connection to customers with sophisticated messaging that moves though all the appropriate channels. Small business brands can be as powerful as those of the Fortune 500, because they become organisations that customers trust.
The biggest difference between evolving from startup to small business today is a result of how much of our world is driven by data, which can now be captured, analysed and offered up through artificial intelligence (AI) tools: entrepreneurs now have the ability to foresee obstacles and opportunities that might have taken them by surprise in the past.
As the use of AI becomes more commonplace, we might soon see a new breed of entrepreneur – one whose roadmap in their business plan charts the course of their firm through the major stages of growth, but who uses real-time data and AI to reshape that roadmap along the way.
‘Startup’ might be how they plot out their first moves and entry into an industry. ‘Small business’ might be the plateau they reach after hitting a number of specific milestones. In some cases they may have even bigger ambitions.
No matter the ambitions though, a data-driven approach from the very beginning is looking like the likely path to success.
To find out more about the digital tools that can help turn a startup into a small business, and help keep a small business on track to success, check out the Deloitte Access Economics report Small Business Imperatives for the Digital Age.