Identity crisis of small proportions
What am I? A small business owner or entrepreneur? Do I own a small business or a startup?
Are you slightly confused about how to define your business? You know, have you begun a small business or a startup? What do terms like small business and startup or small business owner and entrepreneur actually mean?
Definitions vary widely. I’ve heard startups defined simply as businesses in their first stage of operations. That’s me. Others say startups are founded to develop an innovative product or service and to make a profit. Well, duh, unless it’s a nonprofit, don’t we all go into business to make money?
Some definitions go even further and say that startups are technology-driven while small businesses are more traditionally based. In a great article on Forbes.com, Are You Running a Startup or Small Business? What's the difference? writer Jared Hecht says a startup is as an attempt by the owner to produce a quickly growing business that will have a major impact on its market.
The website Investopedia says that small businesses deal with “known and established products and services.” They’re not bringing about change in the marketplace but are instead built on established business examples. As such, the risks taken by small business owners are usually well known (I translate that as less difficulty obtaining business loans). Their entrepreneurial partners, on the other hand, are interested in offering groundbreaking products or services. So entrepreneurs often face unknown risks. And with risks unknown, the entrepreneur may find it difficult to get a traditional loan, so may instead turn to personal savings, family and friends, or even venture capitalists or angel investors.
Venture capitalists? Angel investors?
Perhaps those terms are a tad esoteric. Venture capitalists usually invest in high-risk startups. They look for people with ideas with the potential to yield a high return. Angel investors provide funding, usually through equity finances, to startups. When they invest in a startup, they’re looking for a stake in the business. That can mean, for example, a seat on the board of directors. They can provide their capital to individuals to start a company or one that’s already begun. They’re looking for a major return on the equity they’ve provided.
Are you a play-by-the-rules sort of person or more of a tradition-disturber?
Jared Hecht says people beginning startups are trying to get to the top by disrupting their chosen industry while small business owners want to make a profit by working within industry boundaries. The article goes even further and divides the two by the business’s intent: small businesses intend to stay in business while startups are often temporary enterprises.
An article at Business News Daily, Entreprenuer or Small Business Owner: Which One Are You? sets differences by business structure. It says that small businesses tend to be unincorporated while owners of businesses that are incorporated are more likely to call themselves entrepreneurs. They also outline personality and socioeconomic differences between the two, stating that entrepreneurs tend to come from upwardly mobile, well-educated families and engage in jobs that are intellect-based. They also, so it is said, have a history of exhibiting behaviors against societal norms – from things as innocuous as cutting classes to higher-risk activities such as gambling.
Small businesses work for a profit from their opening day onward and are usually locally or regionally based. You’d think they don’t employ large numbers of people. But how you define size is widely variable. The Small Business Administration (SBA) website recommends people contact their closest SBA Government Contracting Area Office to see where their business stands. However, they have a chart listing size standards by number of employees or annual receipts. You can determine if your business is small by using SBA’s Size Standards Tool or by referring to their exhaustive list of businesses categorized by sector.
What I noticed on SBA’s list is that small business sizes are set according to either number of employees or by profit margin. The numbers vary widely. Some industries can employ up to 1,500 people but others only 100. Chicken egg producers can have annual receipts (total income plus cost of goods sold) up to $16 million. Oil and gas support firms can earn up to $41.5 million and still be considered small. Small petroleum refiners can employ 1,500 and fabricated pipe fitting manufactures can employ up to 500. Coal wholesalers can employ up to 100. Child daycare services can take in total receipts up to $8 million and nursing care facilities up to $30 million.
One benefit of having your business defined as small: the federal government sets aside some contracts for small businesses only. To see how you can qualify, review the SBA’s contracting guide.
If beauty is found in the eye of the beholder, so too might be how you define yourself and your business. Small business or startup, the terms are used pretty darn loosely. My business? Well, seeing as my writing is a distinct and unique product, I’d say I’m an entrepreneur who owns a startup. It’s got a lot more punch than simply saying I’m a small business owner. Wouldn’t you rather be called an entrepreneur?
Merriam-Webster's online dictionary says an entrepreneur organizes, manages, and assumes the risks of a business or enterprise. And according to Lexico.com, you’re probably a person who organizes and operates a business or businesses, taking on greater than normal risks in order to do so. Greater than normal risks? Well, considering that lots of people won’t attempt to open their own business precisely because of risk, I’d say we who do are all entrepreneurs.