SMEs Vs. Startups

Transcript from the Second Bonus Episode of Hardly Working

Nishanth:
Every day we hear about a new startup raising a large amount of money in a new round of funding. Or startups getting incredibly high valuations. Sometimes even more than established companies in the same field, even if they only have a small share of the market.

On the other hand, the government is constantly launching incentives to boost the performance of small and medium enterprises.

On this bonus episode of hardly working, we take a look at startups, SMEs, and the difference between the two. Not just from a technical standpoint, but also from the way they think, the way they operate, and the cultural differences within.

Let’s start with startups. How do you define a startup?.

Maulik:
A startup is a very niche or specialised form of a new business, that seeks to establish and validate a business model, and then scale up rapidly.

As compared to most other types of new businesses, the goal is to eventually grow quickly and become one of the larger players in the space.

Nishanth:
I’m guessing that’s what investors are betting on. Even though a company has a small market share at the moment, if the business model is sound they can scale quickly they could in a short span of time become a market leader. At which point, any investor will make a healthy profit on their investment.

Maulik:
And that’s in sharp contrast to an SME. They tend to be far more comfortable within the market they’re in. Granted, they will want growth over time, but the intention isn’t to become a market leader in just a few years.

Nishanth
That will also bring down the risks greatly right?

Maulik:
Yeah. SMES tend to stick to proven business models, and a steady income stream. From a startup perspective they might seem risk averse, but that aversion keeps them running and keeps the bills paid and the staff employed.

Nishanth
So with a startup the primary mode of income seems to be venture capital or rounds of funding. They don’t seem to be as worried about revenues or short term targets.

Maulik:
Yeah, the idea is that they invest in growing market share and building a customer Base. Once they’ve built that , they can then think about monetizing it.

Nishanth:
It seems like a lot of startups are just concerned with just making their company more attractive to a potential buyer than in actually establishing a sustainable business model. They’re just focused on branding and marketing and on the numbers that make them seem more lucrative to investors.

Maulik:
That’s more to do with the vision of the founders and their vision. It’s unfortunate, but many are just looking for a quick profit, rather than focusing on creating something of value to the customer. But yes, part of the territory of being a startup involves spending money on branding and design and marketing, as it shows investors the potential to build a viable product.

Nishanth:
It’s interesting that you mentioned viable product, because so much of startup culture seems to be around building that minimum viable product, and getting it out there as quickly as possible.

Maulik:
Yeah, since there’s no actual revenue, startups need to get things out and test if they work in a very quick and agile manner. There’s no point in spending years developing a product if there’s no real market for it. That’s one of the biggest differences with SMEs. They’re a lot more careful as they often want to retain their existing customer base, and don’t want to divert too many resources away from their existing product lines to build a new product.

Nishanth:
That’s interesting because in a way, startups are almost playing with someone else’s money, but with SMES they’re often family owned, or owned by a small set of people, and so are a lot more conscious about spending before there’s a need to spend, or before that money has actually been made.

I feel like today everyone wants to be branded a startup, and everyone is chasing that dream of becoming a unicorn. But I also constantly see startups going under, firing staff, declaring bankruptcy and a litany of similar issues. Why does everyone want to be seen as a startup, and if an SME is a more secure option, then why don’t we see the same kind of ambition attached to that title?

Maulik:
Again, a lot of it comes down to the goals and visions of the founder. If they’re purely out to make money, then a startup can net a huge profit in a very short amount of time. And especially when the goal of a founder is to sell and cash out before and of the business or logistical implications of growing and scaling so quickly come into the picture.

And SME might be the safer option, but it takes a lot longer to see the same level of profits. Sometimes even generations.

Nishanth:
That also seems to shape the industries a startup operates in.

Maulik:
Yeah. When the goal is to become a market leader, it can be incredibly difficult in a saturated market.

But they also frequently try to shake up some stagnant markets through the infusion of new processes, or by using technology.

Nishanth:
I think it’s also important to discuss the cultural differences between the two.

Because of the nature of startups they seem to have this culture of “move fast and break a things”. There’s also this image of large open offices, casual dress codes and Aeron chairs. You usually hear words like disruption and innovation thrown around. SMES on the other hand, are, as you mentioned risk averse. But it also comes with a culture that has a strong focus on relationship building and loyalty.

What can a startup learn from an SME terms of culture?

Maulik:
SMEs are very good at building relationships with clients and customers, with vendors, with everyone in their industry. They often know the ins and outs, and have a rolodex full of useful contacts.

There’s also often a focus on knowledge and technical abilities in the traditional sense. They have often figured out what works early on, and stick to that formula, instead of reinventing the wheel.

In the hunt for innovation, startups often lose sight of many of these aspects. The ability of build a close, long term relationship with vendors or even employees. Loyalty within the company, and knowing which areas actually need innovation, and which ones work just fine. They’re useful even for a startup.

Nishanth:
And what can SMES learn from startups?

Maulik:
Most startups run incredibly lean to keep costs down. Every process is optimized, and often can be, because they’re building from scratch. That also allows for incredibly agility. SMES can stand to keep going back and looking at their structures and processes, and trim the fat where necessary. Being innovative and agile can help them withstand market fluctuations and instability. And it doesn’t hurt to have a structure that allows for quick innovation.

Nishanth:
I guess to sum up we could say that startups and SMES are often very different kinds of organizations. That’s driven by their vision, and what they hope to achieve, which in turn shapes the way they work, and the culture within.

And while startups rarely want to be seen as SMES and vice versa, they could stand to pick up a few ideas from each other.

We’ll be back to our regular season on Company culture with the next episode, so if you haven’t already, do subscribe. You can find the podcast on Apple Podcasts, Spotify, Google Podcasts, or anywhere else you get your podcasts.

That’s it from us, and I think it’s time to get back to work.