Startups? SME’s? Small Business? What is the difference?
At first glance, it may seem as if startups and SME’s or small businesses are essentially the same; a small team of people lead by at least one entrepreneur trying to make a name for themselves in the market. Both share some of the same goals: growth, profitability and sustainability. However, there are some key differences between the two, especially in their approach to these goals and their funding strategies.
So, what is a Startup?
A startup starts small, but intends on becoming a large company through an innovative and disruptive business model.
From day one their main goal is to grow into a large, disruptive company. They rely on their innovation or that they have come across the next big idea that will shake up the industry, take customers from existing companies, or even create a new market.
A Startup may begin with funding from the founder’s savings, friends and family, or a bank loan; if a startup is successful, it may receive additional funding from angel investors, venture capitalist, etc and with each series of funding, the startup founders’ equity is eroded, while ownership of the company is divided among all the investors.
A Startup may cease to exist as an independent entity via a merger or acquisition.
How are SME’S or Small Business any Different?
Like the Startup, SME’S or Small Business starts small - but unlike the startup, it represents the majority of the entrepreneurial fabric of any country’s market: grocery stores, restaurants, family owned businesses, hair salons, plumbers,and electricians. You can look at it this way: a lot of small businesses may have a storefront but are not a part of a franchise.
The main goal is not only to have a sustainable and profitable business model, but also to be independently owned. That means they are mostly self-funded, or required a bank loan to get started.
Basically, the small business entrepreneur aims to be their own boss, with a stable career that allows them to sustain themselves and their families. The business model doesn’t have to be particularly disruptive or innovative, it simply has to fill a need in the local market. Having said that, they are usually more focused on acting locally, being a part of the community of wherever they’re located, and provide a steady income.
Despite startups and small businesses being similar in size and having some goals in common, they have a very different approach to business altogether and play very different roles in the global and local market respectively. Regardless of their innovation or social contributions, they’re both relevant and important to the fabric of today’s entrepreneurial universe
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