How Startups Differ from Small Businesses

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We hear the word “startup” almost every day — from friends, in the news, and in conversations about Uber, Airbnb, and other technology companies. But when it comes to defining the term clearly, many people struggle: Is it simply a “new company”? Is every small business a startup?

Actually, no. A startup is not defined by the age of a company or the size of its team — it is a specific stage and process: the search for an unproven business model under conditions of extreme uncertainty, with the goal of achieving rapid and scalable growth. In this article, we’ll explore what fundamentally sets a startup apart from a small business and how some of the world’s leading entrepreneurs — from Steve Blank to Peter Thiel — define the term.

Where Did the Word “Startup” Come From?

Although it may seem that the word appeared alongside Silicon Valley, it is actually much older. The noun “startup” was recorded in the English language as early as 1517 — although at the time, it referred to a type of boot.

In its modern business sense, the term first appeared on August 15, 1976, in Forbes, in an article about “the unfashionable business of investing in startups in the electronic data processing field.” Just a year later, in 1977, Business Week used the phrase “startup company” in the context of fast-growing technology companies — and from then on, the term gradually became established in business language.

There Is No Single Definition of a “Startup”

Even leading theorists and founders do not agree on a single definition. Each approaches the concept from a different perspective:

Steve Blank, author of The Startup Owner’s Manual, offered perhaps the most structured definition: “A startup is a temporary organization designed to search for a repeatable and scalable business model.”

Eric Ries, author of the bestseller The Lean Startup, took a broader view, defining a startup as “a human institution designed to create a new product or service under conditions of extreme uncertainty.”

Paul Graham, founder of Y Combinator, distilled the concept down to a single idea in his essay Startup = Growth: “A startup is a company designed to grow fast.”

Peter Thiel, in his book Zero to One, offered a less formal, almost philosophical definition: “A startup is the largest group of people you can convince of a plan to build a different future.”

Reid Hoffman, co-founder of LinkedIn, avoided a formal definition altogether, opting instead for a metaphor: “Launching a startup is like jumping off a cliff and assembling an airplane on the way down.”

Taken together, these definitions allow us to conclude that a startup is an organization operating under significant uncertainty, searching for a path to rapid and scalable growth by solving a particular problem in a way that is new, better, or more cost-effective than existing solutions in the market.

Unlike a traditional business, a startup does not yet know with certainty whether its approach will work. It continuously tests hypotheses, adjusts its course, and, once its business model is validated, transitions from a “startup” into a stable company. That is why a startup is defined less by the age or size of a company than by a specific, temporary stage of its development.

Therefore, building a startup is not about having a brilliant insight at a single moment. It is about a disciplined sequence of tests: Is there a problem? Is there demand? Does the business model work? Can it scale? It is this process — rather than the idea itself — that determines whether a project becomes a true startup.

Startup vs. Small Business: What’s the Difference?

At first glance, a startup and a small business may look almost identical: a small team, a limited budget, and an ambitious founder. But beneath these surface similarities lies a fundamentally different logic of development — and the clearest way to see it is to compare them across several key criteria.

In simple terms: a startup answers the question “How?” — it is searching for a business model. A small business answers the question “How much?” — it is scaling a model that is already proven.

An example illustrates the difference well. The bakery around the corner from your home is a small business: it has a proven model, stable revenue, and grows gradually by attracting more customers in the local area. A service like Uber, when it first launched, was a startup: the team did not know for certain whether people would be willing to get into a car with a stranger through an app, whether drivers would be willing to work under such a model, or whether the concept could be scaled across dozens of cities. Once the model was validated and the company achieved sustained growth worldwide, it moved beyond the startup stage and became a large technology corporation.

Types of Startups: Why “Startup” Is Not a Single Phenomenon

When we hear the word “startup,” we often picture a team of developers dreaming of building the next Uber or Airbnb. But in reality, the term encompasses several very different models — with different goals, growth rates, and even definitions of success. To better understand what a startup is, let’s look at five main types commonly discussed in contemporary business literature:

Lifestyle Startups

These are businesses built around the founder’s personal lifestyle or passion — for example, a photographer who launches an online school or a traveler who builds a monetized blog. The goal is not global scalability, but rather freedom and an income that allows the founder to live the way they want. In Paul Graham’s framework, such projects often would not be considered “true” startups because they lack the ambition for rapid growth.

Scalable Startups

This is the type most people have in mind when they use the word “startup” in the classic sense — companies such as Google, Uber, and Airbnb. The goal is to capture a large, often global market quickly, raising venture capital at different stages of growth. These are the kinds of companies Paul Graham described with his definition of a startup as “a company designed to grow fast.”

Buyable Startups

These are companies built from the outset with the expectation of being acquired by a larger market player. This often applies to mobile apps or niche SaaS products: a team develops a product, builds a user base, and eventually sells the business to a larger corporation that integrates it into its ecosystem rather than building a competing solution from scratch.

Social Startups

Here, the primary goal is not profit itself, but solving a social or environmental problem — such as providing access to clean water, expanding education in underserved regions, or improving waste recycling. Financial success remains important because it provides the sustainability needed to keep the project going, but the primary measure of success is social impact rather than revenue growth.

Big Business Startups

These are new products or business lines launched by large, established companies — essentially, a “startup within a corporation.” Such teams have access to the resources of their parent company but operate with the same speed of experimentation and tolerance for uncertainty as an independent startup, seeking to develop a new market or technology before competitors do.

Uber and Airbnb: Why They Were Startups

We have mentioned Uber and Airbnb several times throughout this article — now it’s time to explain why they are examples of startups, rather than simply “successful companies.”

Airbnb: When the Business Model Was Discovered Through Trial and Error

In the fall of 2007, two roommates in San Francisco, Brian Chesky and Joe Gebbia, were struggling to pay their rent. A major design conference was taking place in the city, and hotels were fully booked. So they inflated three air mattresses in their living room and offered guests a place to stay along with breakfast. That was how the idea for “Air Bed & Breakfast” was born.

For years, the team did not know whether the model would work. When the website officially launched in August 2008, they initially struggled to generate bookings. Most investors they pitched the idea to believed that people would never be willing to stay in strangers’ homes. It was only in 2009, after being accepted into the Y Combinator accelerator, that the team began refining the model hands-on — improving the quality of listings step by step and expanding city by city until they found a model that could scale. This is a classic example of how a startup searches for a repeatable and scalable business model rather than simply executing a predetermined plan.

Uber: From a Limousine Concept to a Button on Your Phone

The story of Uber began in the winter of 2008 in Paris, when Travis Kalanick and Garrett Camp reportedly struggled to find a taxi after a conference. At first, the idea had little in common with the Uber we know today: the original concept was a limousine timeshare service, where several people would jointly own a luxury vehicle.

By spring 2009, the idea had evolved into an app prototype, and in March 2009, the company launched as UberCab in San Francisco — an iPhone app for ordering premium vehicles at a price roughly 1.5 times that of a taxi. Again, this illustrates the essence of a startup: the team did not begin with a mass-market model of “any car at a low price.” UberX would not launch until 2012. Instead, the company tested one hypothesis after another, continually refining its business model until it found one capable of explosive growth around the world.

What Airbnb and Uber Had in Common

Both Airbnb and Uber started with little more than an idea and no guarantees of success. Both teams faced investor rejections, unsuccessful early launches, and months when it seemed that their business models simply would not work. The difference between them and the thousands of companies that shut down at the same stage was that they continued testing, adjusting their course, and ultimately found models capable of scaling globally. It was this process of searching under conditions of uncertainty — rather than simply the fact that they had founded a company — that turned their ideas into startups.

For a startup, the idea itself is only the beginning. The next challenges are to validate the business model, find initial partners, investors, and accelerators, and build a network of business connections. This is precisely why specialized platforms such as INSTACS are being created: to simplify this search and help founders find the opportunities they need.

Ultimately, the key difference between a startup and a small business is not the company’s age, team size, or even industry, but the underlying logic of its development. A small business typically knows its business model from the outset and focuses on scaling what already works. A startup, by contrast, begins without certainty — it searches for a viable model by testing hypotheses, taking on significant risk, and being willing to operate at a loss for a period of time in pursuit of rapid scalability. Once that model has been found and validated, the startup moves into the next stage: scaling, raising capital, and building a stable business.

Authors:

• Dmytro Maksymiv – founder and CEO of Instacs;

References:

1. World English Historical Dictionary (2024) – https://wehd.com/88/Startup_sb.html
2. Oxford English Dictionary (2026) – https://www.oed.com/dictionary/startup_n
3. The Harvard Crimson — "In and Around Language: What's Up with 'Startup'?" (2011) — https://www.thecrimson.com/article/2011/11/17/startup-language-idea/
4. Steve Blank (2014) Forbes – https://www.forbes.com/sites/steveblank/2014/03/04/why-companies-are-not-startups/
5. Steve Blank, Bob Dorf. (2020) Wiley. The Startup Owner's Manual: The Step-By-Step Guide for Building a Great Company
6. Ries, E. The Lean Startup (2011) Crown Business
7. Graham, P. «Startup = Growth», есе, (2012) – http://www.paulgraham.com/growth.html
8. Thiel, P., Masters, B. Zero to One. (2014) Crown Business
9. Reid Hoffman (2026) https://www.linkedin.com/posts/reidhoffman_if-entrepreneurship-is-like-jumping-off-a-share-6791374654897455104-CHAk/
10. Biz Carson (2019) Old Unicorn, New Tricks: Airbnb Has A Sky-High Valuation. Here's Its Audacious Plan To Earn It – https://www.forbes.com/sites/bizcarson/2018/10/03/old-unicorn-new-tricks-airbnb-has-a-sky-high-valuation-heres-its-audacious-plan-to-earn-it/
11. Keith Radford (2013) uberX: better, faster, cheaper than a taxi – https://www.uber.com/us/en/newsroom/introducing-uberx-better-than-a-taxi-for-the-same-price/