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A Startup or an SME? Know the Difference

Startup or SME

Startups

A Startup or an SME? Know the Difference

There are a lot more entrepreneurs today than ever and a number of circumstances have led to the rise. One of such is high unemployment rate and others like the want to be independent and free of control, be able to innovate and more, leads one to take that route.

With this, we see new businesses coming up on a daily basis and almost everyone is now Mr/Mrs CEO of some venture or organisation. The word startup gets tossed around at almost any given occasion. So how are you able to tell if that new venture is a startup or an SME?

Before I go ahead, you should know that a startup generally is a newly established business thus, all new businesses are startups, but here, I’m looking at the word ‘startup’ not as a type of business, but a stage of development of a business.

Here are few clues that can help you tell if you are a startup or an SME.

1. GROWTH/SCALE

I was contemplating whether to start with growth or innovation but I think growth is a good place to start since we are looking at startups as a stage of development of business.

A startup thinks about growth very differently from an SME. It places no limits on its growth and has aspirations to get as big as possible. You aim to gain so much influence that you can be deemed “disruptive” to the market. You are interested in creating a repeatable business model and also replicate your success all over the world. Some examples are Uber and Airbnb.

A small business is more concerned about profit. It works within a controllable boundary and is not thinking of operating on a very large scale but providing for a certain number of customers.

 

2. INNOVATION

A small business usually is not new and you find many people already in the field/area of interest. Guidelines on how to set up the business are often accessible online and tips on how to operate also.

A startup should be able to innovate. Innovation allows new ideas and sometimes, a completely different approach to how a thing has been usually done. This innovation allows startups to scale at a fast rate hence, the disruption. Uber is an example again.

 

 

3. FOCUS

A small business main focus is profit. The intent is to have very low operational cost even at the expense of expansion.

Startups focus on growth. But that is not all, they focus on solving problems in a new or completely different manner. So we can say their focus is growth and innovation.

 

4. FUNDING 

Small businesses often raise funds from personal savings, family and friends, bank loans as is common lately to support these businesses. Startups at first are funded by personal income and contributions from relatives. The most common route is by raising capital from angels, investors and venture capitalists. 

As a startup, you hope to achieve rapid growth and expansion and need additional capital to sustain you, until you can generate your own revenue and become profitable. 

 

5. PROFIT

How long will it take to make money, and how much can you make? A small business is positioned to break even or even be profitable from the first day of operation. Startups may take months or even years before breaking even let alone make profit. On profit, focus is usually long term. Uber presently still struggles to make profit despite being launched since 2010. Irrespective, it is valued at $50billion.

 

 

6. EXIT STRATEGY

I was thinking of leaving out this last one but then Supersanusi mentioned it in conversation with someone and I decided it should go in too.

Will you be able to move on to pursue other projects? For a small business, your aspirations may fall into the categories of passing on your small business to the next generation of family members, or selling it to a larger establishment. For startups, you’re typically aiming for a very big outcome, such as a sale or IPO.

Either way, you have to understand that a small business and a startup are different and there is nothing wrong in starting your entrepreneurial career with a small business. A better understanding of your business and the market you serve makes it better to plan ahead and increase the chances of success. Understanding the differences between a startup and a small business, and recognizing your personal power to choose the one that’s best for you, is an important skill to have.

If you think there are any other clues, leave a comment.

A sports and nature lover, art enthusiast and rookie globe trotter. I’m also in love with Africa, tech and politics.

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