In everyday life, the words “business” and “company” seem interchangeable. But when it comes to starting a business or a company, the technical differences actually become quite obvious. While I’m simplifying the interpretation of the words, to start a business is to be focused on building a product for a market – product development, technology, sales, marketing, etc… To start a company is to consider the larger picture – HR policies, company culture, investor input, potential acquisitions and growth, etc.
Daniel Tenner of swombat.com breaks down the difference between a business and a company:
A business is a set of people, processes and tools that have been structured around a product to enable it to make money. Ideally, a business is profitable, but it may not be. Ideally, a business doesn’t depend on any one specific person being a part of it (including the founders), but it may rely on some exceptional people.
A company is an organization of people that’s designed to run one or more businesses successfully, and to create new businesses to respond to opportunities in the marketplace. This must be, ultimately, independent of any specific employee, since companies, unlike products and businesses, are (or should be) built to last for decades.
If you have a great idea for something that has the potential to make a lot of money, which should you shoot for? Consider the pros and cons of starting a business vs. starting a company:
Starting a Business
When you start a business, you’re concerned with addressing customer pain points, product development, feedback and marketing and selling your offerings. Generally the intention is to start small and remain nimble, and grow through trial and error. You can grow a business into a company as your processes evolve and improve and you hire more staff.
Though there are a number of benefits to starting a business, there are two in particular that stand out as significant reasons you may want to grow a business first:
Satisfaction. Particularly for someone who is starting his or her first business, it’s incredibly rewarding to be at the helm of a new business that grows and is successful. This product or service is possibly built on your vision alone, and positive reactions by customers might be the best validation for taking on such a risk.
Being your own boss. When you start a business, you control everything, from your time to your income. Having the flexibility to say what happens when and where can be freeing and oftentimes promotes increased productivity and a greater focus on work/life balance.
There are also a number of drawbacks when it comes to starting a business:
You’re bootstrapped. You may have secured some money through small business loans or lines of credit, or even self-funded if you had the means. But to be a small business owner is to be obsessed with your bottom line. This may hinder your progress if you find you don’t have the resources to grow in the form of staff, technological developments, or fine tuning your own skills.
Responsibility. Okay, responsibility in and of itself isn’t a negative thing, but if you’re working on your own to start a business, you’re responsible for its success. This means your interpretation of the marketplace could be way off, or you may have grossly underestimated your start-up costs. There are many variables to consider when starting a business, and if not assessed properly, your own strengths and weaknesses may not be the winning combination to support a successful business.
Starting a Company
If you’re sure of your idea and the market conversations you’ve had with potential customers and investors seem promising or, better yet, indicate momentous demand, you could consider bypassing the “build a business” phase and going straight to building a company. This would include securing funding from venture capitalists, working with a partner (or partners), staff and a board of directors to build on the direction of the company, and develop products and business structures that support long-term and lucrative growth.
There are a ton of benefits to growing your smaller business into a large, sustaining company including:
Resources. With the right combination of both technical and personnel resources, you can do almost anything to scale your business into a full-fledged company. This means you can execute on multiple products and businesses, helping you move quickly in the right direction and grow your reach. You likely have access to a broader range of market feedback too, which you can use to expand your footprint or create new products when you sense a trend. This also means you can be selective with customers — dropping dead customer weight and executing for the right market will help you reach those profit levels we dream about.
Creating a culture. By hiring a full staff – the right employees to fill the right roles at the right time – you’re also able to chart the culture of your company, and can build success based on the strengths of your workers. It may seem “corporate” to start writing down mission statements, values, and policies, but it doesn’t mean your company has to become boring. Many companies, from Zappos to Hubspot, are well known for their employee-centric approach toward building their company. When you invest in your people firsthand, you’re often rewarded in more ways than when you invest in your customers.
As with businesses, the drawback of starting a company can be cruel:
You need a lot of money. Friends and family likely won’t be your backbone here (unless you’re friends with investors and your family is generous with their wealth). Getting a company off the ground requires staff, technology, and systems. Scaling a company from there requires sales and marketing (and more staff, technology, and systems). All of these things require money. Getting funding through VCs isn’t impossible, but it’s certainly competitive. Securing capital means having a clear vision for how you plan to put it to use; there are a lot of challenging conversations that will happen on the road to getting funding.
Failure’s ripple effect. By delving into a market with one offering or one core business, you may find that your company is not nimble enough to build new businesses or adapt to the market, particularly if you raise enough money to gather a large staff right out of the gate. Companies often need time to develop processes for product development, deployment, customer acquisition, and plans for growth, and inefficiencies could be the downfall for any company that isn’t quick to adapt. Any failures (small or large) are under a microscope for investors, media, staff, and the public to see.
Only you know what the right move is for you. If you’re 98% sure of your business and its potential for growth, then its potential to be a company in the future should play a part in some of the decisions you make now. On the other hand, some folks might find it’s a better decision to “go big or go home” and emerge with a company right out of the gate.
How will you start out?
Photo credit: theatlantic.com, taprootfoundation.org