This Is Why It’s Critical to Our Economy That We Distinguish Startups from New Businesses

This might be among my most harsh criticisms of our economy, and I don’t write it lightly but rather because as time progresses, we can see more and more clearly how misrepresentation of focus, skills, and experience, actually harms entrepreneurs.

Not All Failure is Created Equal

And more importantly, not all failure is worthy of your LinkedIn think-piece or your favorite startup podcast’s applause. Some failure is just ( wait for it) -> failure. As in abject failure. As in should fail and in that just about anyone could have told you that it would fail. Not the kind that leads to insight, transformation, or even a good story, but the kind that was entirely avoidable if someone had just read the right books, called an appropriate mentor, or bothered to learn what the hell they were doing before setting up shop.

I was asked, “Why is failure in the startup world often romanticized, but failure in traditional small businesses is seen as incompetence?”

Seems like a reasonable question, doesn’t it? It’s a question I’m going to bet, you read and probably agree with or at least consider having merit. One of those, no such thing as bad questions, let’s encourage people to ask, kind of questions with which you might be thinking, “yeah… why is that??”

In fact, it’s the kind of question that reveals that our ecosystem is harming people, because the basis of the question itself is formed from misunderstanding (or being misled about) what these things do and mean. And yet still, the answer to the question isn’t just in semantics, it’s in economics, epistemology, and a fundamental misunderstanding that’s poisoning both our innovation ecosystem and our Main Streets.

Let’s begin where most of these conversations derail: by correcting the premise.

The question implies that romanticizing startup failure happens “often.” It doesn’t. In fact, Not nearly enough. And small business failure? It should be seen as incompetence. Harsh? Sure. True? Absolutely. Because when we flatten the distinction between startups and new businesses, we do more than misuse vocabulary, we actively undermine the economy by encouraging the wrong behaviors, celebrating the wrong outcomes, and misleading the next generation of founders into making stupid, expensive mistakes.

Startups Are Not New Businesses. New Businesses Are Not Startups. Period.

This is not up for debate. This is not some fuzzy boundary where it’s “helpful to be inclusive” or “everyone’s on their own journey.” No. A startup is a temporary organization designed to search for a new, scalable, repeatable, and competitive business model. It is not, by definition, a business. It’s an experiment.

A new business is just that: a business. A known entity with a known model; something that’s been done before, being done again, hopefully better or in a new market.

They’re not interchangeable. If you’re still unconvinced, you’re not just wrong, you’re dangerous. You’re not being helpful, nor supportive, nor inclusive, you’re misleading everyone. This is dangerous to entrepreneurs (all), dangerous to investors, dangerous to economic development, and yes, dangerous to yourself if you’re looking to be part of either world and don’t know the difference.

One Kind of Failure Is Tragic, and the Other, Necessary

When a new business, say a restaurant, a boutique fitness studio, or a local print shop, goes under, the autopsy usually reveals causes of death that are entirely preventable. Inexperience. Overconfidence. Ignorance. Stubbornness.

Be clinical. I said this would be harsh, but it should be said, I’m sorry if you don’t like it, but the reality is, technically speaking, these aren’t tragic flaws of a misunderstood genius; they’re warning signs that the person behind the business didn’t do the homework.

“But we ran out of money!” you cry. No, you didn’t. You failed to generate money. Which is different. Because thousands of other businesses with the same model do make money. If yours didn’t, it’s not the model, it’s you. That’s not being cruel, it’s being clear. Clarity, in business, is mercy.

Restaurants are among my favorite case study of this because I get personally frustrated when a restaurant opens and you just know it’s going to fail.

How many times have you seen a place open and within weeks you know it’s doomed? The prices are too high. The food is mediocre. The family running it is cooking for their own taste. They don’t advertise. They don’t train their staff. They’re closed Mondays and Tuesdays. It’s not the restaurant business that failed. It’s the restaurant owner. That is incompetence. And I don’t mean that rudely, I mean it literally, that’s the word appropriate; you failed to do what is KNOWN to matter.

Now let’s turn to startups.

Why Startup Failure Is Not Only Okay, it’s the Point

Startups are the R&D of the free market. They overwhelmingly don’t succeed, they discover. They’re how we invent new medicines, new ways of working, better ways of moving, building, thinking, or even feeling. When a startup fails, it tells us something. When enough startups fail in similar ways, it reveals the path to something that might actually work.

Expecting startups to succeed is like expecting every lab experiment to yield a breakthrough. That’s not how science works. That’s not how progress works.

I get it, you don’t want your startup to “fail” as in end, at your expense, but what helps your venture find success are the terms we hear echoed throughout startup communities: tenacity, grit, emotional intelligence — because you DO want your startup to fail, and then fail again, and then try something else that fails — because there is no plan, there is no established model! You’re experimenting.

Despite that, what usually happens?

Small business owners, spurred on by startup hype, think their new dog grooming business is a “disruptive pet-tech venture.” Business Investors, accustomed to balance sheets and quarterly profits, try to jam startups into models designed for stable businesses. Economic developers throw money at “innovation districts” filled with lifestyle boutiques and coworking cafes. None of them are doing R&D. None of them stomach the risk involved in experimentation. None of them are startups. Everyone gets misled and remains. Good job.

That’s when it gets catastrophic — this is why YOUR startup ecosystem is likely struggling: when the lines are blurred, we start killing both species. We pressure startups to deliver revenue before market-product fit (yes, I wrote that backwards, you didn’t have an aneurism). We encourage small businesses to “scale” or be innovative, before they’ve even stabilized as can be expected. We tell founders to pitch before they’ve prototyped. We pretend protypes are MVPs. And we call every Shopify store and Instagram page a “startup.”

You might as well call a carpenter a chemist and ask them to solve climate change.

When I see a Business Plan Advisor or Small Business Banker invited to advise startups, I cringe. No, that’s not even accurate, I get angry, because WTF are you doing steering startups to operate like businesses!?

This Distinction Matters to the Economy

This confusion doesn’t just frustrate founders, in fact, it usually doesn’t frustrate founders because they aren’t entirely aware of the fact that what they’re being exposed to is bad. This undermines the entire economy. Startups are the future. They are our bets on what the world could be. They are where capital should be risked, talent should experiment, change emerges, jobs are created, and failure should be embraced. New businesses are the present. They provide stability, jobs, goods, and services in a known model. They are where discipline matters, where processes matter, where success should be expected.

Mix them up, and you get neither stability nor innovation. You get burned-out founders, wasted capital, and an ecosystem of smoke and mirrors instead of substance.

So yes, we should celebrate startup failure, because it’s what they do and the only people involved among investors, mentors, advisors, local organizations, or service providers, are those who know that’s what they do, absorbing the risk to find new opportunity — not start revenue bearing businesses! On the other hand, should criticize small business failure, because it’s avoidable, and businesses are failing it’s because you’re not providing to them the mentors, advisors, capital sources, and services, that understand their business.

• Inexperience — we don’t know how to get customers
• Overconfidence — we thought we could do it there
• Ignorance — obviously people there wanted our product. We don’t understand.
• Stubbornness — people were telling us that business model wouldn’t work, maybe we should have listened

New businesses can’t be allowed to make those excuses whereas startups can’t be expected to know any better, yet.

Startups are the Future; New Businesses are the Present

Grow up and learn the difference because if you refuse to or you disagree, you’re hurting people. If you’re advising someone to “just start a startup,” make damn sure you know what you’re talking about. If you’re running a startup, don’t take advice from someone who’s only run franchises. And if you’re in policy, education, or economic development, stop conflating the two.

Your failure to distinguish between a startup and a new business might just be the biggest threat to innovation in your city.

How to avoid this? Ask: Are you building something new, or are you just doing something again? Are you chasing innovation, or income?

And if someone around you doesn’t get this yet? Send them this article, sit them down, and make them read it twice. Or call me.

Originally published at https://seobrien.com on April 11, 2025.