Startups are born to scale. They’re created to search for and validate a scalable business model in a way that can have a major impact on the market or how a problem has traditionally been solved. The innovation, disruption and scalability aspects of a startup are why they are different from small businesses and more importantly, why they can’t be treated or built as a small business or subversion of a large company.
Small businesses are created to generate profits and secure local market share. Although small businesses also have the potential to grow into large companies, the driving force behind their growth is national and international expansion through larger teams, supply, manufacturing and distribution channels. When WhatsApp was acquired for more than $19 billion, it only had 55 employees. Instagram, YouTube, Viber, Skype and Tumblr had 13, 65, 50, 911 and 178 employees, respectively. Technology is an enabler, and the reason startups can scale so quickly with a repeatable business model and a tiny user to employee ratio unlike small businesses.
For example, certified public accountants run a small business, and the core of their service is provided by them or their team. Although technology helps them do their job or save time on repetitive tasks, they cannot serve a client without investing time to review and complete their tax returns.
On the other hand, startups like TurboTax have created a scalable platform that enabled them to serve hundreds of thousands of people without needing the same number of service providers. A scalable business model powered by technology enabled this startup to grow exponentially at a pace a small or medium sized business cannot match without investing a lot of resources.
Scalability, innovation and disruption come at a high cost. While around 50 percent of small businesses fail in the first four years, 90 percent of startups don’t make it and for those that do, several encounter near-death experiences along the way according to a Startup Genome study.
Thankfully, several startup and product development methodologies have been introduced to provide entrepreneurs with frameworks to alleviate risk of failure and boost startup success predictability while minimizing costs, whether it’s time or money. Many of those practices can also be applied to start and grow small businesses. Here are two ways a startup development mindset can help you start small businesses on stronger foundations.