Both startups and MSMEs are well known in the business community. Despite the fact that both startups and MSMEs can originate from small businesses, it turns out that there are differences between the two.
Therefore, they are not simply distinct terms. There are a number of distinctions between startups and MSMEs, including capital and business acceleration.
Startup typically refers to technology-based companies, whereas MSME refers to small or medium-sized enterprises. What, then, are the distinctions between the two? View the complete explanation beneath!
Also read: 9 Type of Startups in Indonesia
The Definition of a Startup
Before discussing the differences between startups and MSMEs, it is necessary to define what a startup is. A startup is a company that creates either a physical or digital product.
Startups can be founded by one or more people. Startups typically have a specific target market for their products.
As a result of their greater potential to influence economic activity, startups are typically funded more quickly than conventional businesses. For operational expenses, product development, and staff expansion, startups rely on investors or venture capital.
Also read: 11 Factors That Cause Startup Failure
The Definition of MSME
Additionally, we must comprehend what an MSME is. According to UU Nomor 20 Tahun 2008 on Micro, Small, and Medium Enterprises, MSMEs are businesses owned and operated by individuals, households, or small business entities. Limits on annual revenue, total wealth or assets, and the number of employees are used to classify MSMEs.
Also read: What is UKM: Small and Medium Enterprises (SMEs)
The Difference Between Startup and MSME
Differences Between Startups and MSMEs
After gaining a brief understanding of the meaning of startups and MSMEs, let’s explore their differences from various angles. Here are several distinctions between startups and MSMEs:
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Ideas
The establishment of startups and MSMEs is fundamentally different from the start. Startups typically emerge with entirely new ideas and disrupt conventional patterns in society, such as online motorcycle taxis.
The ideas behind startups are more experimental in nature. In contrast, MSMEs are primarily established to generate profits, resulting in lower business risks compared to startups.
As a result, the products or services offered by MSMEs are generally similar to those of their competitors, such as restaurants, salons, and home culinary businesses.
Also read: What is Pivot Strategy and When a Startup Needs to Use It
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Business Range
Startup businesses have unlimited potential and always prioritize development. They aim for high targets, not limiting themselves to the local level but reaching for international expansion.
On the other hand, MSMEs operate on a smaller scale and have limited reach. They typically grow within their local communities. Although some MSMEs can expand nationally over time, it often takes longer due to different access to capital compared to startups.
Also read: 7 Tips on Writing A Good Startup Business Plan
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Vision
Startups and MSMEs differ significantly in terms of vision. Startup founders often aspire to “rule the world,” meaning they aim to challenge societal norms and disrupt their respective industries.
Conversely, MSMEs are built with the vision of improving the welfare of people in their immediate environment.
Their ultimate vision is to survive and thrive, leading MSMEs to constantly seek ways and opportunities to maintain business continuity.
On the other hand, startups are often temporary in nature, as their larger goal is to grow the business, potentially culminating in obtaining funding through an initial public offering (IPO).
Also read: 5 Reasons Why Startup Businesses Can Grow Quickly
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Profit
When it comes to return on investment and profitability, startups and MSMEs have different approaches.
MSMEs focus on generating profits as quickly as possible, often achieving profitability from the first day of operation.
Conversely, startups may take months or even years to achieve profitability. Their initial goal is to create products that resonate with customers and capture the market.
Once they reach that goal, startup companies can potentially earn billions or even trillions of rupiah. This growth phase often involves significant investment, commonly referred to as the “burn rate,” as startups prioritize rapid expansion before transitioning into the profit-seeking phase.
Also read: 7 Ways To Start A Successful Startup Company
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Funding
Differences Between Startups and MSMEs
A notable and well-known difference between startups and MSMEs lies in their funding strategies. MSMEs are often self-funded or rely on financing from the owner’s closest relatives or bank loans.
On the other hand, although startups may initially utilize capital from their founders, they actively seek funding opportunities from investors. Ultimately, startups aim to secure funding from the public through an IPO.
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Technology
In terms of technology, MSMEs do not heavily rely on or require specific technology for their daily operations. The technology used by MSMEs is typically related to marketing and accounting.
Conversely, technology plays a crucial role in startups. It serves as the foundation and often forms the core product itself. Even if the primary product is not technology-driven, startups still heavily rely on technology to achieve rapid business growth.
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Age and Resilience
Based on data from apiumhub.com, 32% of MSMEs do not survive beyond the first three years. In comparison, the failure rate for startups is even higher, with 92% failing within the same period.
Also read: What is Startup Founder, Definition and Roles
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Exit Strategy
Startups, particularly those funded by investors, have certain responsibilities to fulfill, as investors expect to profit from their investments. To attract funding, startups must have an exit strategy in place, outlining plans for investors regarding their investment disbursement.
On the other hand, MSMEs do not need to consider an exit strategy since they typically do not have investors. They can choose to operate as family businesses or sell the business to interested parties.
These are the nine differences between startups and MSMEs. As you can see, there are significant distinctions between the two. Now, you can distinguish startups from MSMEs.
