“The lifeblood of job creation in America is small business, but they can’t get access to credit.” – Howard Schultz – American Businessman
A great idea, regarding an app or website, that can be the next best thing since Facebook and Twitter is what all the aspiring entrepreneurs think of before launching their tech startup. People going for a small business has more or less same idea about making it big and become the CEO and proud owner of the next Starbucks, just like Mr. Howard Schultz. Obviously achieving all this it’s not a cakewalk.
According to Mr. Kevin McCarthy, a US congressman from California and House Majority Leader, small businesses create more jobs than large corporations. Most young people opt for tech startups because it looks more attractive to them. But all that glitters is not gold. Startups sound like the cool, hip thing everybody admires but around the world small business dominate startups in terms of workforce and also in success rate. Let me elaborate my point of view with the help of few examples now.
Small Business Vs Startups
In European Union, small business now accounts for two-thirds of employment in the region. In UK, which is about to leave the EU after BREXIT vote, at the end of last year, more than 5.4 million SMEs were in operation which accounts for over 99% of all businesses. The situation is nearly the same in US too small businesses make up 99.7 percent of US employer firms. But still the glamor factor drive the young generation fresh out of college towards Startups.
Let me offer you 4 good reasons why going for the small business is a far better idea than going for a Tech Startup.
Pre-existing Customers and a Thriving Market
One of the top reasons why startups fail is that they fail to understand there is no market for the “iconic” product they are about to launch. They invest their hard earned cash in ideas that good look on paper but in reality there are not much people in queue to buy their product. Now switch to SMEs and compare them to startups. There are ready-made market of customers who search for a plumber or a car mechanic regularly.
Running a successful business it’s not always making a splash with your product with a glitzy launch and swanky marketing campaign. In the end, any person who has invested hundreds of thousands of dollars or sometimes millions in a business look for ways to get his investment back. So glamor or no glamor; if a car workshop business is giving a person a neat return on investment, why would he bother to go for a startup with an uncertain future.
Quick Profit with Less Chance of a Severe Loss
I will not deny the fact that startups can be pretty lucrative if it hits the bull’s eye but when it’s not the case, just to get the initial investment back can be quite an arduous task. On the other hand, let’s take the example of a person who has opened a shop where you can get electricians and plumbers on call. The point that these skilled persons charge on per hour basis can be really profitable for the owner of the shop.
For startups in general, it takes up to three years, on an average, before they start making some profit while over 25% of them don’t make it pass the 1 year mark and fail to take off. That’s where small business can be really effective with quick profits with minimal investment as compared to startups.
Ownership in True Sense
For startups, interested in rapid and constant growth, a series of investments is required from venture capitalists, angel investors and even public offering of shares, to name a few. In other words, you start making compromises on the level of control you have in your own firm which may be shifted to an angel investor. And even then, if the idea doesn’t click with the target market, all your investment will be doomed. It’s simply not the case with a small business.
To start a small business, you do need initial investment from a bank or financial institution but you are liable for returning it along with the full ownership of your venture. You are neither liable to anyone nor you have to listen to your shareholders or executives from the venture capitalist firm. You are your own boss and can run the business like the way you want it.
A sustainable business is what every prospective and inexperienced businessman looks forward to. That’s where small business scores yet again over startup. Surely, if you are expecting to become a millionaire within 6 months of starting a SME, you expectations are not rational. But look at the bright side; you don’t have to think of a great new idea, launch a new product and find a niche market for it.
While there are risks in running a SME like any other business, or startup, but just a look at other successful business models related to SME and you will know that you are in much safer waters unlike a startup where you have to chase customers right from the start. By focusing on a preexisting market, the chances are bright for a small business to make it safely to the top.
Chasing your dream by starting a small business or startup is totally up to you. And I am not discouraging you from going after a novel idea that you think can make a difference in the business world. But while looking at the pros and cons of running a small business or startup, small business definitely has the edge over startup. And when it comes to an inexperienced/fresh person looking to make a sound start in the business world, small business is definitely easy to manage and run.
If you think you can add something to this blog or want to give your feedback regarding any aspect, please use the comments section below.