Starting A StartUp Vs Starting A Small Business – Please What’s the Difference?

Not all businesses set out to be great!

The guys that started TikTok, or the guys that started Slack, or Skype—set out to build a multi-billion-dollar company that would get on the stock market or get acquired for an insane amount of money.

Those are the entrepreneurs that we hear about all the time, and that we see as our potential, and that’s not bad. Who doesn’t want to build a business that would change the world?

But the story of how they built their businesses doesn’t necessarily apply to everyone.

Not all businesses are Amazon and not everyone is Jeff Bezos.

Not all businesses are Facebook or Twitter. Not everyone is Mark Zuck or Jack Dorsey (even though investors are considering firing him).

While these companies started in garages and dorm rooms, they were able to raise multiple rounds of venture capital (mostly from Silicon Valley investors) and were able to fuel their exponential growth because they were tackling an insane marketing opportunity- with a new, non-existent or highly innovative approach.

The problem we often see is that many small businesses try to follow the exponential-growth-VC-funded approach, simply because it’s the stuff that we hear about, and we assume ‘that’s the way things work’. The truth is, chasing VC money is not the way it works!!

I’d like to draw a line here- between the blockbuster, unicorn- Silicon Valley-type of startup, and the smaller startup, the company that could become a $10-20 or even $50 million company. But not a $1 billion unicorn.

There are different rules for each one of them- (Startup or small Business) from fundraising, type of investors, recruiting team, and co-founders… Terminology is confusing here. But stay with me!!

Remember we are talking about starting a small business vs. starting a startup.

Reality Dawns

We started Schnuck as the ‘startup’ kind of company, with the characteristics of a ‘small business’… LOL, I don’t even know what that means.

If you don’t know us, we are a Public Relations and Media company focused on the development of technology on the continent using the power of content.

We are using various content platforms that cut across traditional media to digital that has now become ubiquitous; Podcasts, Radio shows, Videos, Tech News on the web, event support, etc.

When we started in 2018, we felt the Tech PR market was damn ripe for the taking, seeing the lacuna in the ecosystem especially north of Nigeria in sub-Saharan Africa where we are currently domiciled.

We thought we had what it took to take down bigger companies like Quartz, Disrupt Africa, Tech Crunch, etc., who are doing well to expand the frontiers of technology in the continent, aspiring to be the Nigerian Techcrunch, or the African C-Net… It’s not that simple.

We saw a lot of similar companies, with potentially excellent and smart founders, good-great content strategy, make attempts to be the foremost media company in the African Tech Ecosystem, which we have seen successes as well as failures.

We have a cool (but can be cooler) content strategy, a growing follower base of 8,000+ strong who watch, read or listen to our content weekly but we are by no means near that company we set out to build, which can make you feel discouraged as a founder, especially if you go too hard on yourself.

On the other hand, we’ve generated lots of money in revenue, out of a company that three guys started in the city of Abuja, Nigeria.

The message I am trying to bring here is that we should be more aware of the companies we are starting, and understand the paths we can take to get them to where we want them to be.

By the way, a small but influential group of entrepreneurs have started talking about the success stories of ‘small businesses’ in the tech space, to shed some light on the entrepreneurs that don’t make headlines but have been able to build multi-million dollar companies that employ dozens and sometimes hundreds of people.

You should listen to the Startup Therapy Podcast and the Baremetrics blog.

I find them very valuable to the startup community!

How can you know what type of business you are creating?

Some examples- Are you providing a service that requires you to employ people?

Then you are probably in the “Small Business” category because you will need to size your staff to scale, which means your employee performance is directly proportional to your revenue, and that usually leads to thinner margins and slower growth. – Sad truth!

The startup category of business is usually software or tech-related.

That means that once the software is built, millions of people can use it without requiring a proportional number of employees. If you are replacing an existing manual process with tech, (digital transformation) then you might be on your way to the unicorn type of business.

Fundraising in Startups vs small businesses

Investors putting money on the startup kind of business, at the earliest stage, expect approximately a 10x return of their investment.

That is if you raise $500,000 at a $5M valuation which represents 10% of the company, in exchange for those $500K they will expect your business to be worth $50M within 5-7 years.

It doesn’t need to be $50M in sales, but someone must value it at $50M, either a new round of investors or a potential buyer. If that metric is not met, then the investors are not getting the money they expected out of this investment. These investors then expect you to sell the business, liquidate assets so that they can get their money back quickly.

They’ll prefer that to the alternative: collect a percentage of your dividends over years or decades.

Doing an IPO, or initial public offering- which means listing the business on a stock exchange is another way for investors to get their money back- but IPOs are reserved mostly for large, $100M+ companies.

This is how you can fund your small business easily!

It’s critical that you understand your own business category so that you don’t waste time approaching the wrong type of investor.

If you are starting a development services company or a growth marketing consulting, or you want to start selling lingerie for plus sizes, for example, you should not waste precious time looking for startup-type investors. In those cases, you probably want an executive type of co-founder, that brings the capital and the client network for say, 50% of the company.

You are equal partners; you provide the talent and manage operations.

That relationship is totally doable.

You may also look to bootstrap, or meet for friends and family funding.

It might be possible to raise $100,000 from people that you know, and that believe in you- but defining the right business size will set the right expectations as to the risks and potential rewards of their investments.

What you definitely don’t want, is raising a multi-million-dollar seed round only to find you couldn’t scale as fast as you expected, trust me!

On one end, you might have a smaller-than-expected business that employs a few people and generates some profits and could continue to operate happily, but on the other hand, you have a group of unsatisfied investors putting you under insane amounts of pressure to grow more or scale.

Whatever route you choose, make sure it is something you love doing. You’ll be doing it day and night for years- and it will become a significant part of your life and your professional career. Chances are, if you succeed, you’ll be forever associated with the company you built-in one way or another.

Thanks a lot for reading- see you in my next StartUp-Centric post.

Inspired by CAYA!