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Difference Between SME And Startups In Nigeria

Olaniyan Toni 0

With regards to the emergence of Paystack, Flutterwave, Jumia,  Konga, etc, the word Starup is now gaining prominence among first time business owners in Nigeria business space.

While the word startup is gaining prominence, many first time business owners still struggle to differentiate the difference between Startup and SME.

In this post, I try to break down the differences and hopefully help clear some confusion.

What is SME?

SME is an acronym for Small Medium Enterprise, a type of business designed to solve people’s need within its locality. SMEs are often setup with no regards for exponential growth. Sample of SME businesses in Nigeria are Hair Salon, Local Eatery, Pharmacy Shop, Café, Bar, House Agent etc.

What is a Startup?

A startup is early Stage Company established with the goal of solving business challenge(s) and by so doing gaining market share. Startup by its very nature must be innovative, unique and more importantly scalable. Jumia, Konga, Flutterwave are some of the popular startups in Nigeria today.

Common differences between SME and Startup

Growth Intent

One of the biggest difference between a startup and SME is the growth intent of the founders. Startup founders are aiming to significantly disrupt and replace current market leaders with their new innovative idea or ways of doing things. In contrast, SME entrepreneurs just want to solve the problem of consumers within its locality.

Business objectives

Again, a startup founder is looking to gain market share by disrupting the current market. While SME just want to sell and make profit. SME is not interested in disrupting the market, not interested in taking market share from other businesses.

Funding

difference between sme and startup

Every business needs money to run and the source of funding is another key area that differentiates startup from SME.  SME are either funded by the owner’s personal savings or through loans from banking institutions or family and friends. Startup at the other hand don’t have to be funded from the founder’s personal savings or loans (even though those options are also available to them). Startups can raise money from business investors like Seed Investors, Angel Investors and Fund managers like Venture Capitalists, hedge fund etc using the company equity.

Ownership

When SME is owned by one person it is know as sole proprietor. If there are more than one owner it is called partners. Whereas when Startup is owned by one person it is called founder. Where there is more than one owner which is usually the case with startup, it is called Co-founders.

It is equally important to point out that in a company like startup, ownership is determined by number of shares owned by each individuals. Owner of these shares are called shareholders.

Summary

As you can see, there are many differences between a startup and SME. As an entrepreneur you must be able to answer which one is better suited for your idea. With that said, all business owners must learn to set goals, acquire funding, and create a plan for the future of their business.

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