People often ask me, “What’s the difference between a startup and a small business?” My answer is this:

A startup is a small business. However, unlike most small businesses, startups typically have scalable revenue models. This means that with growth, the cost of gaining each additional $1 of revenue decreases.

Because startups can be highly profitable, they typically seek venture capital funding. The benefit of raising private equity for a startup is their sales, profit, and valuations are able to grow exponentially.

In my eyes, startups and small businesses both have the same potential risk of bankruptcy. But startups have higher potential return.

In order to have a successful startup (IPO or acquisition in 5-10 years) you need to have a highly scaleable and unique product/service. When evaluating whether or not you should pursue a business idea, always consider scalability.

On the other hand, traditional small businesss models are perfect for the right person. Opening a restaurant or starting a software development company can become passive income over time. These small businesses are great! Just not easily scalable and require a lot of capital.

I hope this thread helped explain some key differences between small businesses and startups. If you have any questions or feedback feel free to comment, like or rt! DMs always open.

Let’s see what you’ve learned. Which one of these revenue streams isn’t scalable?