Have you ever thought about how to start your own business? Probably the word “startup” came into your mind. However, people often confuse the concepts of startup and profitable business, so this article will shed some light on key differences between a startup and a traditional business approach.
By the end of this article, you’ll learn how to start your own business successfully by adding technology to business models that already exist. Read on.
1. Steady Growth vs Leap of Faith
Traditional businesses start earning money from the very first day because they already have enough experience on how to get a first client and make money when setting up a business. On the other hand, startup founders first focus on growth to get as many users as possible offering something new on the market. As a result, it may take a long time for a startup to become profitable.
For a traditional business approach, each client matters. The main focus is to keep your existing clients happy and only then look for new clients.
A startup typically goes through the following stages:
- Finding a solution to a problem experienced by future target audience
- Building an MVP (Minimum Value Product) that is appreciated by users
- Rapid enhancement and growth of the product
- Finding a working business model without losing the existing customers
- All of these stages should be completed very quickly, and such tight deadlines can lead to wrong decisions.
Actually, the entire process of starting a company involves a lot of risks. According to Paul Graham, co-founder of Y-Combinator, starting your own business can be compared with plumbing in an old house. At first the pipes are narrow and twisty, with lots of leaks, but eventually, they are replaced with a single pipe that will deliver the water quickly and efficiently.
2. Known Path vs Flexibility and Research
Business startup owners prefer an agile, flexible approach. They conduct ongoing market research and constantly interview and communicate with potential customers to learn the commercial potential of their startup. As a result, the market actively participates in the design of a product or service. If the market trends change, startup owners need to adapt to those changes and quickly rebuild their strategy. As per Jeff Bezos, founder of Amazon, “…if you’re not flexible, you’ll pound your head against the wall and you won’t see a different solution to a problem you’re trying to solve.”
3. Bootstrapping vs Raising Money
Traditional businesses are often self-funded and have some initial funds resulting, for example, from a loan, whereas startups raise their funds from investors when setting up a business. It’s crucial to know how much capital you need to start a business.
4. Proven Business Model vs Innovations and Technology
A small business can be a local grocery store, a café, or a hairdresser’s delivering familiar services and products. Startups are technology-based; they offer something innovative that can make the lives of their customers even better. For example, Uber isn’t just another taxi service. It uses technology to simplify the process of getting a taxi and make this process faster, safer, and more convenient.
5. Revenue vs Growth
Traditional businesses typically use a proven business model that has already been tested for years. As a result, they get a stable, secure place on a local market. On the contrary, startups are quite risky. They develop a business model in the course of work and learn from their own mistakes. It’s an important point to consider when starting your own business.
When you are starting a small business, the main focus is revenue with customers on existing market, which becomes bigger over time. A startup aims to acquire a new market niche and grow a target audience by attracting as many new customers as possible.
Startups typically focus on a big, scalable market where they can generate a revenue with their products or services, that’s why they tend to grow faster than traditional businesses. Very often startups don’t charge their users at all or offer very attractive free plans. This helps a lot with growth and deal with competition on the market.
6. Processes vs Scalability
Traditional businesses grow quite slowly but they are steadily getting structure and processes in place. Too many clients can overwhelm a small business. At average it takes them about 10 years to set up a business that will pay off.
On the other hand, a business startup focuses on scalability to get huge growth and can make an exit in about 5 years. Many startups fake it until they make it. Or don’t. It is quite a challenge to start a scalable business.
7. Existing Market vs Disruption
Traditional businesses already have a market or at least an idea about their market. Startups often aim to “disrupt” the existing markets with new, revolutionary ideas, or even create totally new markets. Most startups are technology-based, so it’s easier for them to expand their market, as they can use the Internet to advertise and sell their products and services.
Success Stories and Business Ideas
Let’s illustrate the concepts of a startup and a traditional business with some inspiring examples from real life.
Amazon is a good example of both. On the one hand, it started off as a traditional business that was selling books, so it was going to occupy a familiar market niche. The difference though was that those books were sold online, not in a traditional store with bookshelves.
How much capital was needed to start a business? Back in 1994, at the very beginning, Amazon had no investors; it was a family-funded venture. But in 1997, they went public to raise additional capital. According to Fundable, “by 1999, the value of the Kleiner Perkins Caufield & Byers investment in Amazon created returns of over 55%.”
Amazon achieved success after 5 years since starting a small business, as it started adding other items to its assortment and thus popularized Internet shopping by adding technology to the existing business model. Now Amazon is the world’s largest online retailer that sells literally everything, from household appliances to cutting edge gadgets. The company also offers cloud solutions for other e-commerce businesses.
Another successful example is PayPal, which is now one of the world’s largest Internet payment companies. Just after 4 years since starting off, the company was acquired by eBay for $1.5 billion. After that, PayPal was growing based on a business model and had a startup business plan, so it started to shape into a traditional business. As performer eBay CEO Meg Whitman: “First, PayPal focused on expanding its service among eBay users in the US. Second, we began expanding PayPal to eBay’s international sites. And third, we started to build PayPal’s business off eBay.”
PayPal’s founder, Elon Musk, is now one of the most prominent figures in the world of technology and innovations. He used PayPal’s acquisition funds to establish Tesla and SpaceX. These two companies are constantly in the news nowadays, because they are revolutionary and fast-growing ventures, so they can also be considered as successful startups. Starting with $7.5 million and $20 million investments, both companies are now raising billions of dollars.
eBay is also a great example of a startup that skyrocketed in about 4 years after starting a company. In 1994, eBay got its first Initial Public Offering (IPO). As stated on eBay’s official website, their shares surpassed their expectations and reached $53.50 in just one day, with the expectation of only $18.
Many of you may think of Apple as a revolutionary startup. However, seems like it was more like a traditional business when starting off. As stated in the Time magazine, it had a meticulous, disciplined growth strategy. Moreover, author of the same Time article believes that Apple is still a startup despite its success, with plenty of market share remaining. It’s close to the truth, as, according to reports from WikiWand, people still prefer PCs over Macs, if we talk about desktop computers. So, even huge companies have room for growth!
I Want To Start Your Own Business
Now you know the differences between a traditional business and a startup. In addition, success stories from real life may give you a clearer understanding of setting up a business. If you’re thinking of starting your own business, here’s a checklist that can help you decide whether you’d prefer a startup over a traditional business.
- You are innovative. You have enough knowledge and skills to solve the problems of your customers and invent something new by using the latest technologies.
- You are flexible. You have no rigid startup business plan, but you can adapt to ever-changing market trends and perhaps change your course depending on those trends.
- You are not afraid to take risks. A startup is a challenge, so you should be ready to fail. However, you should also be ready to quickly recover from failure and see it as an opportunity to gain experience and learn something new. As per Aaron O’Hearn, co-founder and CEO of Startup Institute, “You will never know enough. You will always be forced to make a decision without fully understanding what is coming. As a founder, that is just something you have to get comfortable with.”
- You are a hard worker. With today’s lightning-fast pace of technological advancement, your business startup should also grow fast to be ahead of the competition. Therefore, you and your team should be ready to work really hard, at least during the first years.
- You are patient. Startups don’t bring profit since day one, as they imply constant research of the target audience. Patience is important for you as a startup owner, as it’ll help you remain on the right path while setting up a business.
- You’re ready for constant improvement. In a startup, there is always room for improvement, and you shouldn’t stop after you reach success. According to Jack Dorsey, founder of Twitter, “Constantly better yourself to stay ahead of the game.”
- You need expert advice and guidance. If you’re going to set up business for the first time, you should find an experienced investor who can also become your mentor.
- You are competitive. Be prepared to deal with competition and lots of stress at every stage of your own venture.
How Arsum Can Help You Set Up a Business
Having years of experience in the field of startups, we’d be happy to help you implement even the craziest ideas and build a product that converts. We’ll provide professional guidance and support at each stage of the startup, so feel free to contact us and share your thoughts.
We can bring innovative technology to your existing business and help with new business ideas.