Over and over again you hear this term from left to right: Startup! Too often we think of a small company type. But have you ever stopped for a moment and wondered, “What really is a startup?”
Is it simply a trendy expression for a quickly developing tech organization, or is there a genuine and significant contrast between what establishes a startup and what qualifies as a “small business”?
Truth be told, there is a genuine contrast between a small business and a start-up. We went through the specific definitions and today we give you genuine clues about them.
Why do startups talk so often about investors and stocks?
Small businesses and startups have one thing in common: the challenge of finding financing options. Because opening a coffee shop and running it successfully is often associated with considerable costs.
With traditional business models, founders often turn to traditional banks or online lenders. They carefully check that the risk is not too high, then offer principal amounts and charge interest on the financing. Small business founders often remain 100 percent shareholders in their business.
Startups tend to take a different approach. Since the risk is often significantly higher here, startup founders like to turn to venture capitalists or angel investors. Although they also carry out extensive review processes, they are prepared not to receive any guarantee of their financing when in doubt. In exchange for capital, the founders give their investors shares in the company so that they can recoup a multiple of their investment in the event of a subsequent sale.
When startups and small companies choose a path without external financing, they speak of the so-called “bootstrapping”.
And how is the future different for startups and small businesses?
startups are assumed to be temporary. If all goes well, the supplier of the product will be established. From time to time it is made public. In these successful cases, we speak of the so-called “unicorns”. Extremely rare exceptions, which nonetheless keep the motivation of many founders and investors high.
And even if they don’t fully explode, the business model can turn into a lucrative venture. Once the idea has been established, that is, tested, the old startups become permanent companies.
Of course, every entrepreneur has different intentions about what to expect from their company, but in general, all founders have the intention of starting self-sustaining and sustainable businesses. And that definitely includes a lot of joy, energy, and a little bit of luck to find out more.