Despite the fact that both business models need an entrepreneurial nature, the reality is that they are essentially different. The lack of clarity to differentiate one from the other will affect the management of your business because confusing them leads to the creation of poorly designed strategies.
An SME (acronym for small and medium-sized business) is a traditional business that seeks long-term profitability while meeting customer needs. They have no more than 250 workers in total and a moderate turnover, and this will be the case throughout their entire existence.
This type of organization is characterized by being more formal, having to comply with various legal and tax requirements. Its structure is more vertical and organized, made up of several people according to the area in which the company is dedicated. It carries out its activities in sectors such as commercial, services, industry, mining, or agriculture. Their classification as such depends on the number of employees and / or total annual sales.
A Startup, on the other hand, is a team of entrepreneurial talent that develops innovations by orienting its business model towards an unsolved problem in the market.
It is in constant development to validate the product / service it offers, seeking to grow and expand rapidly, with a scalable and replicable model generally supported by the technological field. It is structured in relatively small teams, horizontally oriented, where there are no hierarchical positions because they are all equally important and are guided by a leader who leads the project.
The advantage is that it does not go on the market with objectives to achieve, but rather seeks to find a suitable business model for it, how to generate value, how to make money. The time factor is another key difference: Once it grows up it will stop calling itself a Startup.
The basic differences between Startups and SMEs can be summarized in 7 points:
1. The approach
⦁ SMEs: focused on serving the local or national market
⦁ Startups: focus on geographically broader regions, including global ambitions.
2. The market
⦁ SMEs: The products you offer do not have to be new. They seek to position themselves where the demand is and earn the trust of customers. They move into the local market.
⦁ Startups: They develop products highly required by the market. The marketing method is completely customer-oriented. They set larger markets by taking advantage of digital support.
3. Innovation
⦁ SMEs: they have technologies and adopting them allows them to be more productive but they do not absolutely need it to operate.
⦁ Startups: Innovation is part of their production processes to create a differentiated business. Through innovation they can guarantee their growth and create or participate in new ecosystems.
4. The work team
⦁ SMEs: the work team is in the same place, its members have varied profiles with technical skills to operate tools. They tend to have a single founder and, on average in Spain, they have a workforce of 4.5 employees, while in the European Union this value increases to 5.9 (according to the Strategic Framework in SME Policy 2030 of the Government of Spain)
⦁ Startup: employees can be found anywhere in the world with different but complementary skills, who know how to move in environments of uncertainty and demand. They are usually created by multiple partners or “teams.” In clusters of this type of company, for each direct job created, five additional jobs are generated in auxiliary services.
5. The level of risk
⦁ SMEs: they have the opportunity to learn from failures and improve because they do not expect large growth in the short term.
⦁ Startups: the risk may be higher to the extent that it is not possible to dominate the business niche or to propose a true solution to a market problem. Their survival rate is much lower than that of the SME, and much more when they do not have the necessary training and support. For a startup, learning from failures and correcting mistakes quickly is essential.
6. Financing
⦁ SMEs: SMEs usually start as a family business with little or no external capital. The most common is that they take loans with one or more banks that make rapid business growth unlikely and possible.
⦁ Startups: there is a fundamental role for external investors such as venture capitals, investment funds or business angels to finance technological innovation.
7. Growth
⦁ SMEs: they seek to maintain linear and constant growth. They must earn money from the start. They think short term.
⦁ Startups: they can lose money in the beginning but then grow exponentially by applying a scalable model and massifying sales thanks to the technology that allows the product to be distributed. They think long term because the intention is to become a great company.
As you can see, both entrepreneurial ideas seek growth and solidity through different methods. Entrepreneurial spirits who are thinking of starting a business must carefully evaluate what their objectives are and what capacity they have to take risks on the path they want to take.
If you are thinking of a business that allows you to live with dignity with relative security, then yours is to undertake through an SME. If, on the other hand, you want to run a company designed to grow rapidly and you dream of taking it to become a world reference, the ideal for you is a Startup
At Impulsa Ventures we help you to know and accurately identify the essence of your project, so that you achieve the objectives you set for yourself with that business you have in mind and undertake successfully.
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