By Basil Malaki
In Kenya, we operate in a disruptive space where innovation ecosystem terms which are not commonly used in general language are conveniently used interchangeably with little regard to whether we are communicating effectively or not.
With keen interest, I have observed that most players in the innovation ecosystem can hardly differentiate a startup from a small business also referred to as a Micro, Small and Medium-sized Enterprises (MSMEs) or Small and Medium-sized Enterprises (SMEs). Partly, this simple observation inspired me to reflect on how set key ecosystem players are – to take on the challenges faced by Startups and SMEs in Kenya.
“…I have observed that most players in the innovation ecosystem can hardly differentiate a startup from a small business…”
So, what is the difference between a Startup and an SME?
My background in using design thinking to design business models knows too well that a working solution can only come from a known problem. As such, we can not solve challenges facing Startups and SMEs without being able to articulately distinguish these two company types.
First off, so-called Kenyan MSMEs could be bundled into small or medium enterprises. These groupings can be based on either the total sales or revenue generated by a business in a year or the number of people a business employs. According to the 2016 National MSME Survey focused on capturing MSMEs business particulars by Kenya National Bureau of Statistics (KNBS), MSMEs are categorized as follows;
- Micro-enterprises – less than 10 employees
- Small enterprises – 10 to 49 employees
- Medium sized enterprises – 50 and 99 employee
Of significance, startups and SMEs business models greatly differ, startups are more focused on disruptive and lean-innovative approaches, top-end revenue, growth potential, and mostly dependant on funding whereas SMEs are more profit-driven with long term value propositions. Startups are designed to be different, exciting, youthful, rapidly evolving with determination to grow quickly in competitive markets, while tapping into all possible support systems. Moreover, they can easily get away with failure, it is reported that only one in ten startups succeed and exit the startup phase to become a real business since most of their business models are based on trial and error.
In contrast, SMEs are driven by stable and successful business models, local markets, and they tend to operate on proven sustainable revenue streams with structures modelled to deliver value to already-known target customers via known channels.
“…Startups and SMEs business models greatly differ, startups are more focused on disruptive and lean-innovative approaches, top-end revenue, growth potential, and mostly dependant on funding whereas SMEs are more profit-driven with long term value propositions...”
On similarities, both startups and SMEs are established by entrepreneurs to solve specific pain points within a niche market. They’re mostly small in terms of revenue and number of employees.
With a lucid comprehension of how a startup is different from an SME, lets explicate a startup and SMEs enabler also known as an Enterprise Support Organization (ESO). ESOs comprise of – but not limited to development partners, government institutions, social enterprises, business incubators, business accelerators, innovation hubs, financial intermediaries, operators and networks that provide and facilitate access to capital, mentoring, linkage and networking and other similar firms. Yaas! Now you know.