From Scale to Stability: Decoding the Distinctions in Startups and Small Businesses in Canada
You might be often tossing around the terms “startup” and “small business” like they’re similar. But in the Canadian business scene, these terms have their own traits. Startups in Canada might kick off small, but their big goals make them stand out from a typical small business. Let’s get the lowdown on the differences to figure out how they function.
What Is a Startup?
An entrepreneur initiates a startup as a dynamic project with the ambition to discover, refine, and validate a scalable business model. Canada’s startup ecosystem has the impressive 4th spot worldwide and the 2nd position in North America among the top 10 contenders.
There are almost 6000 Canadian startups all over the country, making it a super dynamic and diverse entrepreneurial landscape. Moreover, these startups are excelling in different areas like Edtech, Energy & Environment, and Social & Leisure.
The Approach
Startups are different from other forms of businesses in Canada as they aim to be more than just a one-person show. Instead of staying small or just for self-employment, startups dream of getting big. They aim for massive growth and, in some cases, even becoming publicly traded companies.
The Role of Founders
When people get together with a shared vision and a compelling solution to a problem, that’s how startups usually kick-off. Whether it’s one person or a group of co-founders, they work on making their idea a reality. Business in Canada is booming like never before.
In the beginning, founders conduct market validation through problem and solution interviews and develop a Minimum Viable Product (MVP) or prototype to validate their business models.
The Significance of Business Plans
When a founder is dealing with startup hurdles, a detailed business plan lays out the blueprint for the first three to five years of their business – showing the steps, goals, and vision. It’s a roadmap, giving them a clear path on what to do and how to turn their big idea into reality down the road. Having a great business advisor at this stage makes it easier to ideate and execute.
What Is a Small Business?
Small businesses are corporations, partnerships, or sole proprietorships with fewer employees and/or a lower amount of annual revenue compared to that of a regular-sized business. Small businesses in Canada, with 1 to 99 employees, make up 98% of all employer businesses in Canada. They’re the workplace for around 10.7 million people, almost two-thirds of all employees.
Diverse Spectrum of Small Businesses
In Canada, small businesses cover a lot of ground, from local shops and bakeries to services like hair salons and online businesses. You’ve got everything from neighborhood stores to tradespeople, restaurants, motels, photographers, and professionals like lawyers and doctors running their own gigs.
Regulatory Variances
When it comes to legal requirements in Canada, the rules are different for certain types of small businesses, compared to startups. For example, home accounting businesses might just need a simple business license. But if running a daycare, retirement home, or a place serving drinks have to pass inspections and get certifications from the government.
Scope of Small Businesses
Small businesses in Canada can have simple structures like partnerships, sole traders, or corporations. However, owner-managers frequently blur the lines between personal and business interests.
For example, when they need money from lenders, the latter might ask for personal guarantees or use the former’s private assets as backup, making it hard to separate what’s personal and what’s business.
10 Key Differences between Startups and Small Businesses
When you look at startups and small businesses, each differs in how they innovate, grow, take risks, and run things. Here are the unique traits that make them different from each other:
1. Growth Orientation
Startups are explicitly created to become large firms. Growth is a central objective, and entrepreneurs aim to scale up the company; so they add employees, seek international sales, and pursue expansion opportunities.
On the other hand, many small businesses, often sole proprietorships, may not prioritize growth as their primary objective. Their focus is on maintaining stability and providing products or services without the explicit goal of becoming a large company.
2. Risk and Failure
Startups in Canada, or elsewhere, face a higher risk of failure due to factors such as lack of organization, marketing challenges, or running out of investment capital. Compared to them, small businesses have a lower risk of failure. They tend to be more stable, with a focus on maintaining a constant and reliable income over the long run.
3. Ownership and Structure
Startups can eventually become publicly traded companies, raising capital through selling shares and potentially evolving into larger corporations. Moreover, their ownership structures may change as the company grows.
But small businesses start and remain privately held. Also, their ownership is often independent and may be passed down through generations, maintaining a family-owned structure.
4. Revenue and Employee Size
Startups may start very small but aim for scalability. They may have a small initial workforce that expands quickly as the company grows. On the other hand, there aren’t too many employees working in a small business. For example, if a business in Canada has 19 employees or fewer, it’s considered a small business.
Moreover, small businesses don’t rake in tons of money. In fact, about 27.1% of small businesses with 1 to 19 employees don’t plan on raising prices for their products and services in the next year.
5. Market Focus
Startups often target a broader market; they aim to disrupt the industry and become market leaders. Their products or services are designed to meet high demand and potentially change market dynamics.
However, small businesses in Canada typically focus on the local market; they sell products or services to the local community. Their goal is to maintain a stable income within their immediate surroundings.
6. Funding Sources
Startups mostly rely on external funding sources, such as venture capital, angel investors, or crowdfunding platforms, such as Georgian Partners, OMERS Ventures, Maple Leaf Angels, Angel One Investor Network, or Kickstarter.
On the other hand, small businesses may rely on traditional funding methods, such as loans, personal savings, or local support. They may not seek large-scale external investments.
7. Government Support
Startups may benefit from government innovation programs and initiatives designed to support new and high-potential ventures. Canada offers grants like the Canada Emergency Wage Subsidy, incentives like the Scientific Research and Experimental Development Tax Credit, and resources from Startup Canada for startup support.
Small businesses may receive support through local economic development initiatives but might not be as specifically targeted by government programs as startups.
8. Innovation and Product/Service Offering
Startups usually offer innovative products, processes, or services. The emphasis is on disrupting the market with something new and appealing, driving interest and demand.
On the other hand, small businesses may offer traditional products or services without a strong focus on innovation. Their offerings are often based on meeting local needs and maintaining a stable income.
9. Product Evolution
Startups typically start with a minimum viable product and continue refining and updating it. On the other hand, a small business has a complete product that is actively sold, with a focus on updates or new products. The focus is on refining existing offerings and expanding the product line.
10. Exit Strategy
The exit strategy of a startup usually involves a substantial sale to a larger corporation or entering the public market through an Initial Public Offering (IPO). The IPO allows the startup to issue shares to the public. This gives an influx of capital and transforms it into a publicly traded entity.
On the other hand, for small businesses, the exit strategy often revolves around two main options. Firstly, it may transform into a family business, passing down through generations to maintain continuity. Secondly, the owner may opt to sell the business to end their entrepreneurial journey.
Conclusion
Startups aim for significant growth and innovation, fueled by external funding and government support. In contrast, small businesses focus on stability, often remaining family-owned and relying on traditional funding sources. Each contributes to Canada’s economic diversity and resilience. Whether it’s disrupting industries or serving local communities, both startups in Canada and small businesses in Canada bring their own flavor to the entrepreneurial table.
