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What is an SME?

Connie Evans

The term start-up is relatively self-explanatory, however, here at TalentPool we’re aware that when we mention start-ups we often also mention SMEs. It is easy to be mistaken and think that the two terms can be used interchangeably, however, there are distinct differences between the two and SMEs are a type of company in their own right.

Unless you are familiar with the categorisation of smaller businesses you may not be aware of what an SME actually is. If this is the case, keep reading as we’re going to explain exactly what an SME is and how you can identify whether a company can be classed as an SME.

We’ll start with perhaps the most obvious question, what does SME stand for? SME is an acronym for a small or medium-sized enterprise, the full name is a little bit of a handful to say, hence why you will often hear it abbreviated to SME.

You’re now probably thinking, what’s the difference between an SME and a start-up? Well, from a technical viewpoint, SMEs are categorised by two things: the number of staff within the company and the company’s annual turnover. According to the EU, in order to fall into the SME category, a company must have fewer than 250 employees and have a turnover of less than €50 million a year. However, start-ups can also have these attributes, as a result, in order to distinguish a start-up from an SME you must look more closely at the organisation of the company itself and the path that it is expected to take.

The model of a start-up is often risky and relatively unstable, there is very little certainty surrounding whether the company will succeed or fail and this is usually determined within the first 6 months to a year of the company’s formation. Ultimately, when it comes to start-ups, they either succeed or fail. SMEs on the other hand, are somewhat more stable and structured; they will not need to change their business model as they will have already identified their customer base and should only be looking to secure financial stability. This contrasts against start-ups, as they often need a period of time where they will experiment and explore various approaches in order to secure their market and establish themselves fully.

Ultimately, the differences between start-ups and SMEs can seem slight. However, it is important to know the difference, especially if you think that you would like to work at either a start-up or SME. Believe it or not, SMEs make up 99% of businesses in the EU, so perhaps without even knowing it, you’re likely to end up as part of a team at an SME.