Is your company a startup?

What are the differences between a startup and a small/traditional business?

(4:40 min video)

• Transcript

  Founders can waste months chasing the wrong investors because they don't actually know whether their company's a startup or a small business. To figure out the right strategy for your company, especially your financing strategy, you need to know is your company a startup or is it a small or traditional business. This video is for founders, entrepreneurs, and CEOs who want clarity on their business before pursuing funding. If you've ever wondered how to tell the difference between a startup and a small traditional business model, or maybe you're just thinking about your financing strategy and you don't know which category your company fits into, raising capital is difficult and it's definitely time consuming.

  Angel investor groups look at over 40 companies for everyone they invest in. Venture capital firms look at least 100 companies for each investment. Even a small business loan through the SBA can take months and months of effort. As a founder or CEO, your time is your most valuable asset. You don't want to waste months chasing investors misaligned with your business model. Time is your scarcest resource.

  Fundraising isn't just hard. It's also strategic. In this video, I'll explain the basics of what defines a startup business model compared to a smaller traditional business model. Let's break it down step by step so you can identify where your company truly fits. By the end of this video, you'll know whether your company is a startup or not and how that could affect your financing strategy. Also, I'll recap the key points in a couple of slides at the end that you can screenshot for future reference.

  People use the term startup in two ways. Sometimes it means a company that's simply new. However, for fundraising strategy, that's not enough. What matters most is the business model. The startup business model or the smaller traditional business model. The key thing about startups is they're trying to disrupt a large market with a new business model. Their business model dictates how they develop, price, and sell their products or services. It must be scalable enough to quickly and effectively disrupt the large market that they're targeting.

  Example, think of Airbnb. They didn't just open up another hotel. They created a whole new way for us to travel and stay anywhere. Startups experiment. They test, make mistakes. They learn. They adapt. They're finding their path through the woods. And it takes time before they become cash flow positive. During this period, founders need capital to sustain operations until the model works and it can scale.

  On the other hand, a small or traditional business travels a known route. a highway with clear signs. They've used a proven business model that already exists. Founders might still need to get some capital to get going, but the path to cash flow positive is defined and it's familiar.

  For example, a local bakery or a commercial cleaning company. They know their model. The challenge is execution, not experimentation because their model has been tested. Their time to profitability is predictable. Their break even point is often reached much sooner than a startup. Therefore, there's less risk.

  Traditional businesses don't have to target massive markets. They can thrive in smaller regional ones where they differentiate and they run profitably. So remember, startups search for scalable models. Small and traditional businesses execute proven ones.

  Next, I'll summarize the key points from this video so you can screenshot them. But before I do that, quick favor to ask. If you got value from this video, there are two things you can do to help us create more of these videos. One, hit the subscribe button to subscribe to our channel. Two, send this video to someone in your network who might be interested. The bottom line is the more subscribers we have, the more YouTube videos we can create.

  Now, let's review the key points of this video. A startup is trying to disrupt a large market with a new business model. Therefore, there's a longer path to cash flow positive and it's higher risk than a smaller traditional business model and there's higher potential.

  In contrast, a smaller traditional business uses a proven model. It can be successful in a much smaller market. It has a more predictable path to cash flow positive than a startup does. Therefore, the risk is lower and the returns are more predictable and steady.

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