Small Business or Startup?

Posted by & filed under , .

marketingI had an interesting discussion recently with a friend of mine about titles and terminology used nowadays in business, and it prompted me to continue my trail of thoughts on this on my blog. We talked about how a lot of companies label themselves rather proudly as startups — an idea which my friend was not too fond of.

Twitter, as we all know, is still sort of looked upon as a startup — even though they just IPO’d … well, under a year ago. Facebook, also, even though everyone knew the goal was for an exit of 100 billion, was proudly waving the flag of being a startup, my friend reminded me.

Pretty much, any company that operates in between I-280 and US-101 nowadays will label itself as a startup — I was told. And these startups give birth to a whole plethora of titles, such as CEO, CTO, CMO, CxO — my friend argued. But the reality is, they just create fancy titles and hiding under the title of “startup” allows them not to create a viable business — because, after all, they are still starting up, right? They don’t have to bring in revenue or have a solid business plan… At least that was my friend’s argument.

In the light of that discussion and the (rather heated!) debate we had, I sat down afterwards and thought about my experiences on both side of the Atlantic with small companies and/or startups.

In UK, and in fact throughout Europe, these entities are referred to as “small businesses”. I have been through the process of setting up and running such a “small business” in UK a while back, when I set up a company called 3B Software Ltd. (The idea behind the name was quite deep: “Bed & Breakfast Booking system” which was offered for free, as a “freebie”. As it happened, I have managed to put together a rather small B&B booking system and had a tiny amount of traction for it but other opportunities came up and I realised that perhaps my area of expertise was not hospitality but rather digital media and advertising — so I packed up the company and moved on.) Point being that I know quite intimately the whole “small business” segment and the ecosystem around it in the UK.

As I mentioned, in the UK, once you set up a company, you are referring to yourself right away as “running a small business”. That in itself has a lot of (not at all positive) implications:

  • first of all notice the word “small” — this puts you in a different frame of mind right away, it sort of limits you! You can’t plan big and be taken seriously I feel when you’re running a small business!
  • the small business segment in the UK encompasses entities which in Silicon Valley would be labelled as “startups” as well as small convenience shops (corner shops as they are referred to over in Blighty). So right away, whether you like it or not, you are in the same category as the guy around the corner selling overpriced cigarettes to kids (it used to happen in UK, ask anyone)!
  • the fact that it’s a small business, it already suggests to everyone that your main aim with this entity is to get it to make profit as soon as possible so you can live off it. There’s no time, in anyone’s mind, to sit down and plan for growth or strategic development, oh no! If you’re running a small business everyone will ask you (directly or not) how much money do you make. Try to explain to them that well, you see, we’re in the concept stage now and still developing our product — and you get a blank look followed by “so it’s not a business then”!
  • In fact, once you admit to that, most of the people around you will treat you like you are just fooling around trying to avoid doing some “real” work. Try to get some motivation from that 🙂
  • There are indeed a lot of governmental grants and entities meant to help the small business segment — and chances are if you open a coffee shop or such you will find help there. I personally tried it, and while the people involved were very nice and very well intended, at the time their only focus was to try to get me to sell this product and find customers. None of them had any insights into how do I prospect the market, get some early adopters and so on. When it came to that their advice was upon the lines of “well, why don’t you sell your product online, set up a website for it, or do a deal with PC World and the likes?”. Trying to explain to them that I need first some customers to work with me in developing this into what they need saw some blank faces: “I thought you already have a product!”. I gave up in the end trying to explain to them that yes, I do have a product, but the product does what *I* think it should do and I need to find out what *the market* thinks it should do. Point being that a small business in UK has to try to sell “stuff” asap and not beat around the bush doing “other things”.
  • People generally in Europe are not that keen to work with or for “small businesses” it seems. Try to get a meeting with a small chain of B&B’s labelling yourself as a “small business” yielded no results — the moment I called and introduced myself as a “startup in London” things have changed though. So overall, it seems being or running a small business is not an ideal thing in UK.
  • Once you set up a company in the UK, the person running it is a “managing director” — over in USA that term changes to “CEO”. This entitles you to being part of the (exclusive) Institute of Directors or IoD as it’s referred to often. I’ll be honest, that club is more focused on its etiquette and dressing code than anything else 🙂 I walked in there and the feeling of being an old boys club right away overwhelmed me. And going in there as someone running a small business gets you looked down upon like there’s no tomorrow — because, after all, you’re in the same bucket as the guy running his corner shop!

Now thinking about the term “startup”, see to me that’s a better fit: you are not starting up a small business, you are hoping your business to be huge (let’s look again at what happened with Twitter and Facebook!), but you are just starting up. Being in that frame of mind means that it’s ok to change plans (pivot) and it’s ok not to be revenue focused, focus instead on developing a product. You are not running a tiny shop to get you enough revenue to live on, you are planning to take over the world and at this very moment you are just starting up! Of course your company is small, because you are just starting to build it.

Whereas the term “small business” has no projection of the future in it — based on the term itself a small business can after all stay a small business its entire life! — “startup” on the other hand suggests right away that you are just at a beginning of something. Something that can become big. Or at least bigger than “small”! It changes the frame of mind, I think, drastically.

As for the CEO vs “managing director”, I’ve touched before in my blog on titles (see my post on “Flat Structure“) and I have a similar view on titles too. Apart from the fact that a title is a recognition of ones work, it puts you in a frame of mind again. CEO suggests something bigger than just “managing a company” (not that in itself that’s easy) — it has some air of making some big executive decisions. It suggests that you have other “officers” around you to help you with that, you’re part of a team, not a one-man-do-it-all.

Just a thought…