How to differentiate between an SME and a start-up
February 25, 2014 00:00 By Wilas Chamlertwat (@TheInk)
Since I published my book "Startup: New-gen Rich Man" last year, I have had many questions asking what is the difference between an SME (small or medium-sized enterprise) and a start-up.
People are quite curious as how they can distinguish these two terms from each other, wondering whether it is a matter of size or about the period of operation.
To answer this question, I would like to quote Dave McClure, the founder of 500 Startups, who says a start-up is a company that is confused about a number of things: what its product is; who its customers are; and how to make money.
As soon as it figures out all three things, it ceases being a start-up and becomes a real business. Except most times, that doesn’t happen.
Moreover, there is an interesting definition from Steve Blank, a Silicon Valley serial entrepreneur and academic, who says a start-up is an organisation formed to search for a repeatable and scalable business model.
As we can see, both experts emphasise “searching”. The goal of a start-up is to figure out the right thing to develop to generate the maximum revenue from the right customers. Once everything is settled, the start-up will either “exit” to be a real business or it might fail and move on to another opportunity.
This kind of growth doesn’t happen overnight, or without a clear plan in place. Start-ups must allow themselves time and not become discouraged when they do not see a healthy profit immediately. They have to use initial investment wisely and efficiently.
An early-stage venture that is not capable of rapid change is a small business, not a start-up. So, we can say that being a start-up is about trial and error.
Although there are many shining examples of successful start-ups in the tech area, it is not limited to technology industries. For example, it applies if you try to open a unique chain of coffee shops.
You are not sure about customer segmentation, you are looking for a proper channel, and you want to grow the chain as fast as possible. Finally, you will be able to grow it faster once your business model is settled. So, yes, you are also called a start-up.
But, if you want to open a small coffee shop with no plans for another one and are satisfied with the current state of affairs with your current coffee shop, then you are not a start-up – and we are going to call you an SME. So, it may be about growth, as well.
In people’s mindsets, start-ups are pretty young, not-so-profitable and ultimately “fun” overall. However, this sweeping perception is completely mistaken.
A start-up is also an entrepreneur with limited resources but high ambition. Only one in 10 will survive. Those that do tend to be covered by the press, because they are amazed by how they can do it.
If you think about it, the “dead” entrepreneur – the failure that falls by the wayside – does not have any opportunity to talk about the tragedy they experienced in their entrepreneurial life.
Wilas Chamlertwat (@TheInk) is a digital innovator and techie co-founder of BOXBOX.me, which is a loyalty platform for SMEs.