Everybody talks about startups – they’re exciting, trendy, and often the focus of entrepreneurship support programmes in low- and middle-income countries. But is this truly the right approach for most entrepreneurs? How many of the entrepreneurs that entrepreneurship programmes support are actually startups? Or are they innovative SMEs?
It might seem like a small difference, or even a semantic discussion, but the distinction is crucial. The difference between a startup and an innovative SME is not about the number of employees or size of the company – it’s about the type of growth the business model is capable of.
Startups are:
- Businesses that are newly established, often tech-driven or digitally enabled. Their business models are focused on rapidly scalable innovation, aiming for exponential growth.
- For instance, a tech startup developing an app might start with a few users, but as more people join, the value of the app increases for each new user, leading to even more rapid growth. The result is a snowball effect, where growth accelerates at a faster and faster rate as the company scales.
Innovative SMEs are:
- Innovative small or medium-sized enterprises developing or adopting products or services that are new to the region or sector. These businesses can experience linear growth.
- For each new product/service they sell, there’s a fixed amount of raw materials or personnel costs required, which limits their ability to leverage snowball or network effects. As a result, their growth is linear, and they face a natural cap on rapid scalability, preventing the type of exponential growth seen in startups with scalable, tech-driven models.
The key difference isn’t the size of the business but the growth path. A startup is built to scale quickly, often through disruptive technology and using network or snowball effects. An innovative SME, on the other hand, might focus on more gradual but steady improvements to its business model or processes.
At Orange Corners, we’ve seen this distinction in action:
- Startups: platforms and apps like Orderii, Obens or Scrapays
- Innovative SMEs: water saving devices such as H2Oasis, packaging manufacturers like DercolBags or cosmetics brands as Cabo Samlan.
So why does this matter? If your support programmes (like training content) are focused on startups, but your entrepreneurs are innovative SMEs, your programme may not be as effective. For example, training focused on scaling for investors or rapid growth methods might not be what an innovative SME needs, as their focus is more on operational efficiency and incremental improvements.
So what does this mean for Orange Corners? We’ve realised how important this distinction is. We’re doing research on what each group needs and how we can better align our programmes to the specific needs of each group.
