The difference between a startup and a small business

Confused much? Picture: Getty Images

The Crossroads report for 2016 has been released, providing a detailed review of Australia’s startup ecosystem.

It also explains the ins-and-outs of the sector, how it works, what it needs and even how it compares to the rest of the world.

And it outlines why startups are not the same as small businesses, demystifying a common misconception.

Because the two are confused so often, we have lifted the entire sub-chapter from the report to provide a clear definition between the two.

Here’s what you need to know.

The term “startup” is widely recognised to mean an emerging high growth technology-based business as defined above, whereas a “small business” is generally considered to be a business that is providing less differentiated products or services, is often trading in a confined geographical area, and even if it experiences growth will remain a small business over an extended period.

Startups, on the other hand, start small but have the capacity to experience massive and sustained growth, often enabling them to become significant players in global industries within a small number of years.

Small businesses are important to any economy because they are numerous (there are around 2 million in Australia) and they provide an income to a significant proportion of the workforce (they represent almost half Australia’s employment in the private non-financial sector). However, small businesses are not a source of significant potential economic growth in the same way that startups are.

From an economic policy perspective it is vital to make a clear distinction between startups and small businesses because they have very different needs.

Read the full StartupAUS Crossroads report here.

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