A Startup Or A Small Company? That Is The Question…

Your first step in building a successful startup is… to be sure you should really found a startup (instead of a small company). Seriously, think about that.

In the last years, the word “startup” became so popular that it’s commonly used as a synonym for ‘a small company’ or ‘a company recently founded’.

And, believe me, the difference is huge.

A BUSINESS OR A SOLUTION?

To make it clearer, ask yourself about the origin of your business idea. Did it come from:

  • An existing business model—validated by one or more entrepreneurs—that you would like to run?; or
  • An innovative solution you thought about to solve a problem you or someone is struggling with?;

Let me give you one example of each.

You may have seen a franchise which products you love and you would love even more to work as an entrepreneur with this brand. Here, you began focusing on a validated business model. So, your business relates to a small company, not a startup.

However, you may have seen a lot of parents having hard times trying to make their kids eat in a healthier manner and you’ve thought about—with the help of your psychologist friend—an innovative methodology to solve that problem. Here your starting point is an innovative solution for a relevant problem. To execute your idea, you’ll found a startup—not a small company.

Okay… but I still don’t get it. What’s the purpose in defining the “right” name for my business anyway?

Because you must adopt the proper mindset and attitudes depending on your case. Acting in a small company with the mindset of a startup owner—and vice-versa—may frustrate you and keep you a part from success. What works well for one case might be a bad call for the other one.

Let’s take a look at 5 relevant differences you’ll find when leading one type of business or the other:

Small Company vs. Startup

1. ASSUMPTIONS RISK: LOW VS. HIGH

Small Company

Your business model underlying assumptions were already tested and successfully implemented by one or more entrepreneurs. Hence, you don’t need to hypothesize or test them again—which may reduce the surprises you’ll get about them too. That’s why you study the business model and the dynamics of the business as thorough as you can by researching companies that have become successful through it, reading about the players and the industry, as well as talking with experts.

Startup

The initial assumptions are your best guesses and you must treat them so. At this very beginning your work is focused on testing and learning about your business model hypothesis. And to learn as fast as you can, you start talking, empathizing and testing your assumptions with real customers as much as you can. Besides that, you and your team put a lot of efforts analyzing the data coming from the tests to validate or not the assumptions.

2. PLANNING FRAMEWORK: RIGID VS. FLEXIBLE

Small Company

Considering you are working on a business model already validated, you base your planning process on gathering all the information and details you can to follow the successful steps of other companies in this industry. So, you invest your time to produce a great Business Plan—a document with a lot of information about the business you will run as: products and services, short and long-term financial projections, market analysis, etc.

team planning.jpg

Startup

With just a few guesses about what may work, you adopt a flexible mindset and consider your planning process as a “live” document ready to be adapted as soon as you review your assumptions. Therefore, instead of a dense Business Plan, you choose using Business Model Canvas (BMC)—a framework that allows you to update your assumptions fast and redesign your business hypothesis with agility. Besides the BMC, you perform other analysis (financial, market size, etc) with the purpose of supporting your short and medium-term validation process (instead of trying to predict long-term outcomes).

3. EXECUTION FOCUS: EFFICIENCY VS. EFFECTIVENESS

Small Company

With your business plan on hands, you start working as efficient as you can. You know that following the step-by-step execution validated by successful entrepreneurs in this business model may lead you to success. You already know what success looks like, so you focus your attention on how well you’re doing the tasks to be there.

Startup

With you Business Model Canvas drawn on a board, your attention is laser focused on testing your most important assumptions and learning about them as quick as you can. Once you still don’t know exactly what are the things that will actually work in your business, you won’t put much effort on perfectly designing your internal processes nor hiring more people to execute them. First, you invest your time on testing and learning.

4. STRUCTURE STATE: DEFINITIVE VS. TEMPORARY

Small Company

After thoroughly studying about the business model and designing a business plan, you set everything you need to run the business processes. Now, you are working to convince the customers that your business overall offer is better when compared to your competitors. Gradually,  you raise your market share and hire more people, but your business dynamics and core activities don’t change radically from the beginning.

Startup

Finally, after several iterations, you’ve validated your business model hypothesis. You’re happy because you’ve got in to the traction stage and customers are excited about your value proposition. Now, it’s time to put more focus on internal processes to guarantee that what you’ve promised will be consistently delivered. You begin to act more as a company and less as a startup.

5. GROWTH: LINEAR VS. EXPONENTIAL

Small Company

Gradually, you have been showing your customers you are faster and better than your competitors. Your company is growing consistently at a linear rate. Your rate of growth reflects the competition and the costs of changing customers take into consideration before deciding buying from you.

Growth.jpg

Startup

With an innovative alternative in the market that solves the problem through emerging technologies customers start jumping on board fast and your company begin to grow exponentially. You have run some risks with your initial assumptions and now it’s time to see a high return on your

AND NOW?

Now, you have enough information to answer: what kind of business are you on?

It’s a small company! Then start studying thoroughly about your industry and your competitors. Craft a business plan (there are tons of business plan frameworks on the web) and execute it as efficient as you can.

It’s a startup! Then dedicate your time interacting with customers and understanding how to test and learn about your assumptions as fast and as cheap as you can. And…. keep with us! We’ll provide you important startup concepts, methodologies and frameworks to help you adopt the right mindset and attitude to lead your startup to success!

 

Please, let me know your opinion about this post. Leave a comment or share it with some friend who may benefit from it!

Alex

Alexandre Azevedo (LinkedIn)

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