What’s the difference between Startups and SMEs?

We’re used to hearing the traditional models of business; either a Small to Medium Enterprise known as SME and Multinational Companies, known as MNC. Some notable SMEs in Singapore include Redmart, an online grocery shoppingsite and Foodpanda, an online and dedicated food delivery service. MNCs include Adidas, Apple and Amazon.

So how does a startup fit into the 21st century market?

While both entities are similar in terms of manpower and employs stricter financial control, the fundamental structure and intent of a startup and SME branches off completely from each other. To simplify this article, I’ve identified three categories that clearly define a startup or SME: intent, funding and function.

Intent

Streaks of light from cars with the city skyline as the backdrop
Startups and SMEs need to move fast in a business-oriented world

This is probably the most important of the three as the intent of the innovator would form the structure of the company. A startup intends to create a scalable business model that can grow into a disruptive company, with the ability to sway the current market trends and even create new markets.

An SME on the other hand, utilises traditional methods of businesses by securing a sustainable place in the market that is motivated by profits. In turn, this creation of a market offers a reliable source of revenue.

While all businesses have some risks involved, startups are more likely to encounter challenging situations that tests the mantle of the business itself. Some of these obstacles include funding. 

Funding

Drawing of three people holding a giant cheque and pen

Every business requires funding; without it, there’s no business.

In Singapore, startups have access to a variety of grants. These grants may include tax-free incentives like a 0% tax rate for the first S$100,000 of normal chargeable income, or companies that are keen to fund startups in exchange for tax reductions.   

On the other side of the fence, because SMEs are about control, the method of obtaining finances requires that it does not relinquish a part of their company in exchange for funding. But because SMEs work on methods that are proven to succeed, their profits have a higher guarantee than a startup, depending less on investors.

Function 

Magnifying glass showing cogwheels
Everyone plays a part in a business, big or small!

Trial-and-error versus proven success. In this instance, it makes sense for people to go for a proven success path right? But if we dig deeper, using old methodology usually offers limited success. Alternatively, a constant process of trial-and-error will yield a unique business model that works specifically for a startup in a way that SMEs and MNCs cannot mimic.

Startups are inherently disruptive to traditional market models due to this functionality part. They seek out niche services in the market and grow from there, eventually ballooning to the point of being a viable competitor at some level.

Eventually, if it ever becomes this successful, it’ll leave the cocoon of a startup behind and flourish into a real business. It may fail as well, but there is room to move on to other opportunities instead of failing outright.

Author: Rhyn Chan
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