The world is full of startups, with young people who want to create a tech-based company instead of a traditional business. But to achieve a certain level of success, it is essential at some point to move from being a startup to becoming an SME. After all, the data shows that only 1 out of every 100 startups survives beyond five years, while SMEs reach that milestone in about half of cases.

What is a startup?

Generally, a startup is understood to be a small company created by entrepreneurs with a technological foundation and great development capacity. In the best cases, its growth is very fast, following the principle of fail fast—a mantra repeated in tech hubs around the world about innovation: fail fast, fail often, fail cheaply… and above all, research and learn quickly.

What is an SME?

A small or medium-sized enterprise is an entity that carries out an economic activity and meets certain legal criteria. According to these, there are three types:

• Microenterprise or micro-SME: fewer than 10 employees and an annual turnover below €2 million.
• Small enterprise: up to 49 employees and a turnover of up to €10 million.
• Medium enterprise: fewer than 250 employees and a turnover not exceeding €50 million, or a balance sheet below €43 million.

Startup or SME?

Based on the above, a startup can be an SME, but an SME is not necessarily a startup. In any case, beyond the legal definitions, we usually think of an SME as a more traditional company, perhaps already consolidated in its business or sector; while a startup is born from technological entrepreneurship, operates with a leaner structure and fewer administrative processes, focuses on business development, and pivots quickly to achieve exponential growth.

Differences Between a Startup and an SME

Putting aside the legal definition of an SME, here are some aspects that help distinguish a startup:

Growth
SMEs generally grow more slowly but steadily. A startup, however, is designed to grow rapidly and exponentially. The risk is greater, and its survival less certain. Ambition and scarce resources define these projects, which often play the “all or nothing” game.

Vision
While it can be shared, founders of startups typically have a clear, often idealistic, vision of the future. These entrepreneurs want to change the world, fulfill a dream, or become a global reference. On the other hand, those who start a small business usually do so because they have identified a market niche or see an opportunity to make money.

Business model
A traditional company has a clear and defined business model, which is not always the case in startups. Startups, instead, seek their model through trial and error. Their creation is based on searching for a viable model to monetize an idea.

Innovation
Startups have a high component of innovation, which is not necessarily true for SMEs. This applies not only to creating technology but also to its use, the provision of services, work processes, or other aspects.

Making the Leap from Startup to SME

Creating a startup can be seen as the preliminary stage of a tech SME—the phase before consolidation and stabilization, when the business becomes viable and, above all, sustainable. As the company grows, it may maintain its vision and values, but keeping the same management model and operating style becomes increasingly difficult.

How to Transition from Startup to SME

We understand this process as a maturity stage in business development, although from a legal standpoint, many startups are already considered SMEs. Likewise, an SME in a stage of maturity or stagnation may reconvert into a startup-like structure to gain agility and redesign its business. Below are some key factors to make the transition from startup to SME effective:

1. Business is about selling
In startups, commercial efforts often fall on the project leader or CEO, when in fact all resources should focus on selling. The idea that every employee represents the company is gaining ground: their actions either help sell—or don’t. In startups, the need to validate the project quickly makes everyone’s involvement in sales even more crucial.

2. Finance growth
Profits? Better to leave them for later. All returns obtained should be reinvested to accelerate growth and strengthen the company’s foundations. If the business starts showing results, don’t get complacent—investing in the company itself is the best way to secure the future and scale success.

3. Continuous improvement and quality
It is impossible today to move forward without meeting basic quality standards. Attention to detail and adopting the best ways of doing things are critical. While startups are usually unstructured to maintain agility, it is advisable to define processes that can be continuously questioned and improved. Complexity can grow as the company does. Decision-making, crisis management, delegation, and resource allocation should all be clearly defined.

4. Measure and change quickly
This is a basic principle of startups: trial, error, and agile adaptation. Everything that can be measured must be measured to understand dynamics and focus efforts on what truly works. As James L. Barksdale once said: “If we have data, let’s look at data. If all we have are opinions, let’s go with mine.”

5. Management system
As processes become more complex, it becomes increasingly difficult and costly to manage them efficiently in an integrated way. A multitude of separate programs is not enough and can hurt productivity. The best approach is to implement management software that meets the company’s current and future needs.