Startups play a pivotal role in driving innovation and sustainability, yet they face significant challenges. This research investigates the challenges faced by circular startups and non-circular startups in Sweden during business model development, with a focus on how quality practices and service innovation strategies can be used to address these challenges.  While previous studies have primarily focused on challenges faced by CSUs, they have given limited attention to how these challenges are addressed, especially in comparison to non-CSUs. For this research , the author used a qualitativeresearch approach, data was collected mainly through semi-structured interviews with six startups and supported with secondary sources. Key findings highlight that CSUs often face unique challenges such as securing initial funding, aligning regulatory requirements, and achieving market acceptance for their circular offering. In contrast, non-CSUs encounter challenges primarily related to unique innovation. While exploring quality practices and service innovations used by each startup, I highlighted how they differ. By providing actionable insights, this study contributes to broader discourse on sustainable business development and offers recommendations for startups to enhance operational resilience, customer satisfaction, and market adaptability.