By: Andrew Wyatt Brilliant
The business world is ridden with misnomers. Words with specific distinctions are often used inter-changeably with one another. Chief among these mix-ups are the two terms ‘startup’ and ‘small business.’ Allow me to explain how these two very similar words are different.
A startup may be a small business, but a small business is not, nor was not necessarily a startup.
Small businesses comprise 99.7% of all U.S. firms. What defines a small business varies by industry, but is unanimous in requiring a proprietor that owns at least a 50% majority in the company. Most sector definitions include a cap on the number of employees, though this number varies greatly, where some small businesses can have 250 workers, others 1,500.
Beyond majority proprietorship and employee number limits, a business’s classification as small must include an annual receipt range, changing per sector. For example, while a small business farm can only have a maximum in $750,000 of annual receipts, a transportation and warehousing business can range from $7.5 million to $37.5 million in annual receipts. Check out this table of size standards if you want to know more.
So, what then classifies a business as a startup? A startup is much less defined by the specific criteria used to classify a small business, and much more defined by its state of mind. Startups solve world problems with creative and unusual solutions. Whereas a small business attempts to fulfill a service or need that is already established, a startup creates (or rather, identifies) a market for something entirely new.
For example, consider the small business Chicago Financial Services, a residential mortgage firm that operates in the mid-market real estate sector. Founded 30 years ago, CFS assists home- buyers and owners by providing them with a residential loan or re-finance. While this service can be fulfilled by an infinite number of banks and other mortgage shops, CFS remains prosperous due to their excellent customer service. This is often the main selling point of any small business in America: improved, detailed, and high-quality customer service. But, CFS is not a startup, nor was it ever a startup.
Now consider Bird. Bird, of Santa Monica, was founded about 5 years ago as a startup that offers an entirely new form of shared-mobility: the electric scooter. Bird recognized a problem in the typical use of public transportation. While busses and trains offer an easy and cheap solution to traveling within a city, the stations are often annoyingly far from the final destination. Bird aimed to solve this problem by launching a fleet of electronic scooters that could be used by a traveler at any time, for a small fee. Their model did not stop at the consumer: to charge the scooters, Bird will contract people to charge the scooters at their homes, paying them a small stipend in return.
Bird not only identified a problem with no solution, but also an entirely new market in the shared-mobility sector.
Its success? MASSIVE! So, is it still a startup?
Not really. While many businesses lose their designation as a startup once they exit (IPO or acquisition), Bird graduated from the startup title by growing to a point where it has over $623 million in funding, over 500 employees, and a valuation in the billions; it has also already acquired 2 organizations, Circ and Scoot.
Thus, a ‘startup’ is a journey. It may end with a successful small business, a gigantic IPO, or something in between. But what makes it different from a small business is its state of mind: its wild, bootstrapping, time-demanding and relentless mission to solve a problem that has never been solved.