What are SMEs and How Do They Differ from Startups?

When you talk about small businesses, the first thought that comes to mind is small and medium-sized enterprises (SMEs), followed closely by start-ups. Though they look the same, SMEs and start-ups are two separate categories of business with different hierarchies, ambitions, and economic functions.

In this article, we’ll break them down—what they are, how they can get funds, and the challenges they each encounter—to see what makes each one unique.

SMEs vs. Startups

SME stands for Small and Medium-sized Enterprises, and according to the European Union, it has fewer than 50 employees and a turnover of less than €10 million annually. SMEs underpin most economies, generating employment, supporting local businesses, and creating stable growth. SME’s can range from small eateries and independent shops; their focus is on steady income and stability, with a steady customer base.

A startup is an early-stage company that can expand quickly and potentially disrupt existing industries. In a startup, an idea, product, or technology has a chance to scale fast.

Startups do not strive for stability like SMEs but rather rapid growth so they can dominate the market and perhaps take off around the world. They operate mostly in technology or e-commerce spaces, where disruption is the name of the game. A good example of a startup would be Airbnb, which started as a room rental company and expanded to be the hospitality giant in the world.

Key Characteristics of SMEs vs. Start-ups

Though both types of businesses may start small, their goals and growth paths differ.

Characteristics of SMEs

• Steady growth: SMEs aim for consistent, long-term growth rather than fast scaling.
• Regional focus: They usually cater to local or regional markets, providing reliable, essential services.
• Incremental innovation: SMEs tend to enhance their products and services over time rather than introducing revolutionary changes.
• Often family-owned: Many SMEs are passed down through generations or started by individuals seeking stability.

Characteristics of Startups

• High-growth potential: Startups are designed to grow quickly, often capturing market share in competitive industries.
• Global scalability: Startups are built to expand rapidly beyond their initial location.
• Innovation: Startups prioritize ground-breaking innovative products or services to differentiate themselves.
• Risk-oriented: Startups operate in a high-risk, high-reward environment with a focus on fast growth.