Startups vs. Established Businesses: Unveiling Key Distinctions
In India, the terms startup and business are often used interchangeably, leading people to have an unclear understanding of their fundamental differences. While both involve working in the world of entrepreneurship, they both represent different philosophies and objectives.
Regardless, in India, nowadays, even young roadside chai walas call their venture a “Startup”.
So, let’s delve deep into the what’s the actual difference between the two and unravel the differences that set startups and businesses apart, eventually explaining why not all new companies fit the startup definition.
What is a Startup?
A startup is a newly established firm with a vision to develop a new product or service, usually involving tech at its core.
Startups are characterized by their potential for exponential growth and disruption within their respective industries.
According to the initial definition provided by the Department of Industrial Policy and Promotion (DIPP), a startup in India was defined as a business entity registered either as a private limited company, a partnership enterprise, or a Limited Liability Partnership (LLP), with a revenue of up to Rs 25 crores. In terms of time, the title startup could be held by an organization for 7 years from its date of establishment.
But to make it easy for startups to get funding, the government changed some regulations. The government stretched out the time a firm can be called a startup from 7 to 10 years since it started. Plus, if a startup makes less than Rs 100 crore a year, it still gets to be called a startup.
But why the change?
Well, people were worried about taxes on investments from angel investors in new businesses. So, to help startups get funding more easily and establish ease of doing business, the government decided to ease some regulations.
However, there seems to be a distinction between the government’s definition of a startup and the definition of a startup recognized globally. Startups are typically in the early stages of development. These firms are characterized by uncertainty in business growth, experimentation in offerings, and a relentless search for product-market fit. Startups often operate in domains where technology plays a pivotal role, aiming to introduce revolutionary products, services, or business models.
After getting a better idea about “Startup”, let’s understand what a business is.
What is a business?
On the other hand, a business is a more generalized term encompassing any commercial, industrial, or professional activity undertaken to generate profit. Unlike startups, businesses might not necessarily be based on cutting-edge innovation.
Traditional businesses vary from small enterprises to large corporations. These businesses are based on proven business models and span across various sectors such as retail, manufacturing, or services. Unlike startups, businesses tend to focus on consistent, sustainable growth rather than rapid and potentially unpredictable expansion.
Not All New Companies are Startups
People need to understand that not all new companies fit the definition of a startup. Even though a startup is a business entity, it represents a distinctive company distinguished by disruptive ideas, potential for rapid growth, and technological advancement.
However, many new companies that enter the market to establish a sustainable business model and achieve consistent profitability call themselves startups, but they aren’t classified as startups. Despite this, businesses are just as important in growing the economy as a startup. They are mostly into smart money.
Factor-wise Difference between Startups and Business
| Factors | Startup | Business |
| Innovation | For startups, innovation is essential to their ability to survive and thrive. They are all focused on bringing attention to cutting-edge ideas. Shaking the established norm, deviating from accepted procedures, and coming up with innovative solutions for complicated issues is their go-to strategy for survival. Being innovative is crucial for startups because it keeps them on the path to success. | From a business perspective, innovation is important, but businesses prefer to balance it with stability. Legacy firms prioritize improving their current goods or services by making only small changes. |
| Growth | Startups are all about achieving their goals faster. They do this by leveraging different marketing styles, spreading awareness of their brand, and acquiring customers faster. | Contrary to this, traditional businesses want steady growth. They want to build up a bunch of loyal customers and keep serving them. These businesses make smart moves and avoid big risks, so they can keep growing for a long time. |
| Risk | As startups are built by new-age entrepreneurs, they are known for their risk-taking capabilities. Startups have no issues operating in unchartered territory and not knowing what’s going to happen, as they believe in the mantra of bigger risks equals bigger rewards. | Businesses, especially the older ones, don’t like risks as much. They want things to be stable and predictable. They might change a bit when the market changes, but they’re careful and want to keep making money steadily. |
| Funding | Startups heavily rely on outside money. They depend on people like angel investors, venture capitalists, or even regular people on crowdfunding sites to give them money. To stay in the market and put out new innovative products, startups require external funding. | Contrary to this, businesses with a good track record have more choices for money. They can get regular loans, and credit lines, or even use the money they make to keep going and growing. |
| Profits | Startups often use the revenue they generate to get bigger instead of just keeping it. They might not make a lot of money right away because they’re so focused on scaling their business, getting big, and doing more. | Businesses want to make money and keep making it but without the expense of risking it with scaling. They want to be stable and keep a good amount of profit so they can pay their bills, keep going, and give money back to the people who invested in them. |
| Goals | Startups are all about changing things and making a big impact. They want to disrupt their industry and create new things that nobody’s thought of before. | Businesses just want to grow steadily and keep their customers happy. They care about staying competitive and keeping up a good reputation while they make money. |
| Structure | In most startups, everyone does everything. This ability to work together on multiple things helps them make decisions quickly. People might do different things depending on what’s needed. | However, legacy businesses usually have more levels of hierarchy and clearly defined roles. And as their size grows, they might use more formal processes and have different departments to take care of everything |
FAQs on difference between startup and business
What exactly defines a startup?
A startup is a newly established venture driven by innovation, aiming to address a specific problem using novel ideas and technology. Startups have strong potential for rapid growth and often seek external funding to support their ambitious plans.
How does growth differ between startups and businesses?
Startups prioritize exponential growth and market disruption, seeking a significant market share quickly. In contrast, businesses focus on steady and sustainable growth, gradually building a loyal customer base.
Can businesses also innovate?
Absolutely. Although startups are known for disruptive innovation, traditional businesses also innovate to adapt to changing market conditions and customer needs. However, their focus is often on gradual improvements rather than revolutionary changes.
Are all new companies considered startups?
No, not all new companies qualify as startups. Startups are characterized by innovation, rapid growth potential, and a technological focus. Other newly formed companies might prioritize low risk, consistent profitability, and sustainability, fitting more into the business category.
Can a startup evolve into a business over time?
Yes, startups can transition into businesses as they mature and establish themselves in the market. With time, as they achieve growth and success, their focus might shift from rapid expansion to sustaining profitability and market presence.
