STARTUP vs. SME: Know their main differences

The lack of clarity to differentiate a startup from an SME can have negative repercussions on your business. To name a few, the creation of objectives is ambiguous and strategies are misdirected. Although both models require an entrepreneurial character, their essence is different. In this blog we will help you to know the difference between startup and SME so you can achieve the goals you expect for your business, let’s get to it!

What is a startup?

Defining a company as a startup has nothing to do with its specific size or form of organization, but with the way it sees things. That said, it is a company that engages with other startups with a strong relationship with technology to generate a culture and mindset of innovation from existing ideas and thus stand out in the market.

Startups have a scalable business model that makes intensive use of ICTs, which allows them to enjoy rapid and sustained growth over time.

One of their main characteristics is their permanent and constant progress to demonstrate the value of the innovation created and their support in the technological field to boost their growth. Also, compared to traditional companies, startups require less capital.

What are SMEs?

The word SME is an acronym for small and medium-sized enterprise, which refers to traditional business models in search of long-term profitability.

The main objective of the leader in charge of it is to discover a viable and sustained business opportunity that allows the profitability of the company’s activity in the short, medium and long term.

On the other hand, SMEs are more formal, with rules to comply with and a more vertical organization. Even from a legal and tax point of view, they must comply with several requirements to carry out their activity.

In addition, its business model is clearer and more predetermined, but this does not eliminate the fact that it does not take risks.

 

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STARTUP vs. SME: 6 essential differences

As mentioned above, startups are characterized by proposing innovative ideas that seek to position themselves as solutions in the market, which aims at accelerated growth and capitalization of their ideas with large revenues in the short term.

On the contrary, an SME seeks to strengthen its presence in the market organically and, although it has aspirations to become a large company, this is not necessarily its main objective.

Having said that, we will proceed to mention the main differences between a startup and an SME:

Startup

1. Different approaches

Generally, SMEs concentrate their efforts on serving the national or local market; whereas, startups have their eyes set on geographically wider areas, arguably even global ambitions.

It is also common for startups to focus their innovative ideas on products rather than services, just the opposite of what most SMEs are used to.

Different levels of innovation

Although SMEs have technologies, they do not necessarily need innovation to operate, and the same is true if they are to grow. Therefore, this aspect is not considered a competitive advantage.

On the contrary, startups are all about innovation and it does not always have to be technological, and can be based on production processes or on a differentiated business model: they can be dedicated to the niche of biotechnology or the development of new materials.

 

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3. Work teams

Unlike startups, SMEs work locally. That is to say, their entire work team is located in the same place and they all have a varied profile. To give you an example, think of restaurants or workshops.

Not so with startups whose collaborators are located anywhere in the world and need strong technological capabilities. It is not hard to imagine a startup whose headquarters are in Spain and part of its development or marketing team is distributed in Latin America.

In addition, SMEs are usually formed by a founder or CEO, while startups are built by teams in which each partner has different and complementary skills to lead them.

4. The levels of risk they assume are very different.

The nature of a startup is to grow until it dominates its market niche, crosses the valley of death and is acquired by a third party. But, the SME has the opportunity to learn from its own mistakes to improve and continue to grow.

The first ones go for “all or nothing” and their survival rate is usually lower than that of an SME. For those who decide to start an SME, learning from failures is important, but for those who set up a startup, it is simply fundamental.

5. The origin of the financing

Startups are born from the idea of their creators, but they do not always have the resources to bring it to market. For that reason, investors play an almost fundamental role for the business. Simply put, if there is not enough capital, there is no way these ideas can get off the ground.

On the other hand, SMEs tend to be family businesses that generally arise from the need of entrepreneurs to use their own resources or some credit obtained. If they do not have sufficient capital, they are compromised and their growth tends to be a little slower.

6. They grow at different rates

SMEs, although they have a slower growth, look for linear growth from the beginning; while startups lose money at the beginning and then grow exponentially, because their focus is on scalability.

What you probably didn’t know is that a startup can become an SME, since their differences do not lie in their product and service offerings, but in their growth, degree of impact and innovation.

 

You may also be interested in: Digitalization and business sustainability: related tools

 

Now that you know the essential characteristics of a startup and an SME, you are ready to take your business idea to the current market. To achieve this, you can’t miss Gestion Direct‘s digital solutions with which you will ensure the success of your business. If you want to know our prices or need any advice, do not hesitate to contact us at our email gestiondirect@gd.eu.

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