Startups vs. Small Business: Key Differences

It’s common for people to confuse startups and small businesses, sometimes even using the two terms interchangeably. However, these two forms of businesses have different structures, goals, and approaches to doing business. To help create a more clear distinction, we’ve outlined the main differences between the two below.

Overview

Startups and small businesses have very different approaches to business. To get a basic understanding of how the two businesses differ, we’ve outlined a quick definition of the two forms of business:

At a Glance: Startups vs. Small Businesses

Startups

Startups are built for scale. They're typically formed around an innovative idea or disruptive business model with the goal of capturing market share quickly. Startups thrive on experimentation, iteration, and the pursuit of rapid growth—often backed by venture capital. Facebook, Amazon, Apple, Netflix, Google— even companies like WeWork, Peloton, and Beyond Meat are all considered to be startups.

Small Businesses

Small businesses are independently owned and operated companies that typically serve a specific local or niche market. They're more focused on stability and long-term sustainability than rapid growth and often rely on traditional funding like personal savings or small business loans. They are often referred to as “Main Street” businesses, such as coffee shops, salons, repair services, and local retailers. These businesses don’t aim to disrupt industries—they serve their communities and power local economies.

Breaking Down the Difference

When distinguishing between small businesses and startups, there are five main noticeable differences:

1. Growth Intent

Startups are built to grow fast. Founders launch with the intention of scaling quickly and disrupting the market, often aiming for national or global reach. This rapid-growth mindset is why startups are commonly found in the tech industry, where products can scale easily. Small businesses, by contrast, are often focused on serving a specific local or niche market. Their growth goals are typically steady and manageable, with an emphasis on sustainability over speed.

2. Business Objectives

Startups are designed to search for a scalable and repeatable business model. Their success is often tied to innovation, user acquisition, and outpacing competitors. Small business owners aren’t trying to reinvent the wheel, they want to provide valuable services or products to their communities and build a profitable, long-term business. These businesses are often rooted in entrepreneurship and independence rather than market disruption.

3. End Goals

For startups, the end goal is usually an exit, either an acquisition by a larger company or an initial public offering (IPO). Once a scalable model is found, the business evolves beyond “startup” status. Small businesses tend to prioritize longevity. Success might look like handing the company down to family, selling it to a new owner, or simply maintaining operations for years to come.

4. Funding Strategy

Startups often seek equity financing- raising capital from angel investors or venture capitalists in exchange for ownership stakes. This funding model enables fast growth but often comes at the cost of control. Small businesses usually rely on debt financing options like loans, credit lines, or personal savings. This allows them to maintain ownership while accessing capital to support operations and expansion.

5. Risk Tolerance

Launching a startup involves a high level of risk. Founders are testing new ideas in unproven markets and betting on their ability to disrupt existing systems. Small businesses still carry risk, especially early on, but they often operate in established industries with known customer demand, making the risk profile more manageable.

Banking Solutions for Startups vs. Small Businesses

No matter the business type, choosing the right banking partner is critical. But your financial needs may differ based on your goals.

Banking for Startups

Startups need a financial partner that supports rapid growth and scalability.

Top banking priorities:

• Seamless digital tools for fast-paced operations
• Treasury and payment solutions to support fundraising or VC inflows
• Access to integrations and APIs for tech-enabled business models
• Credit solutions that scale with growth

Grasshopper offers:

• Startup Checking with no monthly fees and unlimited ACH transfers
• Access to partner tools and VC integrations
• Treasury services for complex financial needs
• High-yield interest on balances

Ready to move fast? Open a Startup Checking account in under 5 minutes.

Banking for Small Businesses

Small businesses need reliable, everyday banking with tools that simplify back-office operations.

Top banking priorities:

• Streamlined payment and invoicing tools
• Transparent, low-fee checking
• Support for long-term sustainability
• Lending options for working capital or equipment purchases

Grasshopper offers:

• Business Checking with 1.80% APY and free Bill Pay
• Unlimited virtual debit cards
• Access to loans, lines of credit, and integrated bookkeeping tools
• Human support from our dedicated business banking team

Looking for simple, powerful banking? Explore our Small Business Checking options.

Which One’s Right for You?

Should you start a small business or a startup? Neither is necessarily better than the other. It all depends on your goals for the business. If you have an innovative idea with a disruptive business model and the potential for rapid growth, then a startup is likely the best choice for you. If your business is more traditional and you find yourself focusing on a specific, local market, then you should consider creating a small business instead.

In Conclusion

While startups are looking to quickly expand, small businesses are focused on maintaining a constant and stable revenue stream. As it grows, a startup may eventually go on to become a publicly traded company, whereas a small business will remain privately held, sometimes being passed down through families for generations. Small businesses are all about stability. Startups are all about revolutionizing the market. Both have the opportunity to become successful businesses when operated correctly.

No matter what kind of business model works best for you, Grasshopper can help make sure your finances are in check. With both Small Business and Startup offerings, Grasshopper Bank understands what each business model needs from the vast experience of its teams. Apply for a checking account in as little as 5 minutes today.