Startup vs. SME: Which One Do You Want to Build? 

Startup vs. SME

Setting up and developing a startup venture can be very different than running a traditional small or medium-sized enterprise (SME). The main difference of both, according to Johanna Puhtila, can be indicated as follows: 

Growth and scalability

Startups are different from traditional businesses primarily because they are designed to grow fast. By design, this means that they have something they can sell to a very large market. For most businesses, this is not the case. This is also one of the reasons why most startups are tech startups. Online businesses are able to reach a large market because people can buy from or use products regardless of the business owner’s location. The distinctive feature of most startups is that they are not constrained by these factors. 

See also: 7 Elements of Best-Selling Product for Startups

According to investor and angel entrepreneur Paul Graham, “That’s the difference between Google and a barbershop. A barbershop doesn’t scale.” To grow rapidly, startup founders need to make something they can sell to a very big market. Generally speaking, to operate a business, they don’t need a big market. Startup founders just need a market and need to be able to reach and serve all of those within your market. 

The relationship with funding 

Apart from having different ways of thinking about growth, startups seek financial investment differently than most small businesses. Startups tend to rely on capital that comes via angel investors or venture capital firms, while small business operations might rely on loans and grants, solely on their own revenue stream. The interesting thing about venture capital is that those providing it, tend to have a more active role in whatever company they are backing. While a small business awarded a grant or loan might occasionally need to report back to their bank, a startup with angel backing will probably be getting a bit more help. They’ll be receiving advice from the investor (after all, the investor is the one taking the biggest risk) and, if the founder is young and inexperienced, there’s probably nothing better than a helping hand. This is especially true for those teams or individuals that become a part of an accelerator or incubator program.

Planning for the “end,” or the exit strategy

Another thing as a business person, you’ll want to keep in mind, is your vision for your business. If you’re pitching for investment without an exit strategy, you’re unlikely to get it. Investors usually need an exit strategy as they need to maximize their return of the investment. If you’d still like to be running the company in 10 years’ time, you’re probably going to want to ensure that exit plan comes in the form of a steady revenue stream that allows you to pay off investors. “Exit strategy” development is a problem business persons won’t have with their own business, at least not until they’ve made it big or until they change their mind about owning the business. The point is, in a traditional business (not a startup), the owner doesn’t need an exit strategy at the start. They’ll be entirely responsible for the future of their company and it will be down to them whether or not they run it for the rest of their life or decide to sell, merge or launch it on the stock market. 

Read also: From Unicorn to Zebra: Which Business Zoo Do You Belong to?