Startups, Scale Ups and SME’s – What Are They and Should We Care?

With elections looming, we can all expect to hear a lot more about the economy in the coming months. Politicians and economists will all be talking about startups, scale ups and SMEs, and why we want more of them – but what do these terms actually mean and how do they differ from each other?

Startups

Starting with startups, the clue here is in the title. A startup is a new innovative business offering goods or services based on new technology, it will be inventing its own processes or products and business model and will not be sticking to how things are traditionally done. Often these businesses have a broad geographic reach and lower costs than a traditional small business. In addition they are often financed by business angels or early stage equity investors who are not prioritising short term profits and instead are focused on getting a product or service fit for market and to a point where it can be scaled up. Startups aim to grow quickly in terms of size and revenue and ultimately to move on to the next stage and become scale-ups.

Scale-Ups

So what do we mean by a scale – up? As you might guess a scale-up is a start-up that has grown up and changed scale. It has established its business model, proved its viability and is ready to industrialise its product or service. To qualify as a scale-up according to the OECD, a company must be growing at more that 20% a year in turnover or employee numbers over a three year period, have an established and profitable product or service, have as  its main goal growing its market and have raised significant funding.

SME’s

How do these compare with SME’s? Small and medium scale enterprises are generally perceived as more traditional business on a slower growth trajectory, that have been around longer than start-ups or scale-ups and that don’t have the same exponential growth potential. These make up the backbone of the UK economy employing over 16 million people in 2023, 61% of all those employed by the private sector, so whilst not as headline grabbing as start-ups and scale -ups their importance should not be underestimated.

Clearly all three have key roles to play in boosting Scotland’s economy.  We need more SMEs to provide economic stability, more start – ups to allow development of new innovative ideas and then for more of these start-ups to become scale-ups which can make a huge economic contribution to small country like Scotland. Agreeing that we need more of all three types of company is simple, making that happen will be more difficult – lets hope our politicians come up with some workable plans to achieve that goal.

Disclaimer 
The matter in this publication is based on our current understanding of the law.  The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers Stewart LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.