You’ve been hearing a lot lately about how Small and Medium-sized Enterprises (SMEs) – also called “small and medium-sized businesses (SMBs) – are taking over the market. You’ve been hearing a lot about how excellent they are at what they do, which is now being appropriately rebranded as ‘smallness’. SMEs have been lauded with so much enthusiasm lately and their huge contribution to the global economy has led to the question of whether big corporations are on their way out.
Small and medium-sized businesses are a catch-all phrase used to describe businesses that are not large enterprises. They make up the majority of the businesses operating around the world. If you want to have a better understanding of what Small and Medium-sized Business is, then you’ve come to the right place! This article will not only tell you what Small and Medium-sized Enterprises are, but will also answer all your other questions.
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What Is a Small and Medium-sized Enterprise?
Many people claim to be a small or medium-sized business, but they are either wrong or they are misleading you. If you’re like most of us, you’d understand that your definition of ‘small’ might be different from your neighbor’s. And the government has its definition which may or may not match your own. There is no official definition of what constitutes a small or medium-sized business. However, SMEs are typically known to meet certain restrictions on employees or financial measurements.
With that in mind, how exactly do you define small and medium-sized businesses in layman’s terms? Is it just any size business with less than 200 employees? Or maybe, it’s any size of business with annual revenue under $10 million? Maybe it’s any size business that isn’t a part of the Fortune 500? Technically speaking, isn’t Google a small business? In this article, the definition will be broken down by explaining differently, the definition of a small enterprise and a medium-sized enterprise.
What Are Small Enterprises?
A small enterprise is a privately owned and operated company that has only a few employees, and often only one owner. Small enterprises usually have more personal relationships with their clients and also tend to be more flexible than medium-sized enterprises in terms of product offerings and workplace policies. A Small enterprise is more likely to be a small business rather than a household-based organization.
What Are Medium-sized Enterprises?
On the other hand, a medium-sized enterprise is a privately owned and operated company that has fewer than 500 employees but more than just one employee. Medium-sized businesses have a larger market share compared to small businesses. This means they can afford to roll out product lines faster or even change direction if needed, which makes them much less susceptible to changes in consumer taste or market conditions.
Types and Examples of Small and Medium-sized Enterprises
When it comes to SMEs, one size does not fit all. The maximum number of employees varies from one country to the next. For instance, the United States defines SMEs, among other characteristics, as those with no more than 500 workers; while some countries dock the total number of employees at 200. There are different types of small and medium-sized businesses that can be found in nearly every industry sector. Here are some examples of different types of small and medium-sized enterprises:
- Retailers / Wholesale Companies: Retailers – such as franchisees and independent store owners – and wholesale companies are good examples of SMEs. They usually have one owner or fewer employees and are closer to their consumers.
- Construction Businesses: Construction businesses build heavy infrastructures such as bridges, canals, dams, airports, water systems, and railways. Many of them are small and medium-sized enterprises because they have many characteristics of SMEs.
- Home Service Professionals: With careers ranging from gardener to cleaning services, this is one of the widest types of SMEs. They are usually few and they offer services that help people maintain their homes.
- Service Professionals: Service professionals work with people to make their lives easier. They are closer to their clients and provide a better customer experience. Some of them include medical service companies, financial service companies, or digital agencies like Foenix Hub.
- Restaurants, Bars, and Nightclubs: Restaurants, bars, and nightclubs provide food and entertainment services to consumers. Many of these businesses can be regarded as small and medium-sized enterprises because of the characteristics they possess.
- Transportation Companies: Transportation companies help people move from one place to another and can be regarded as SME companies because of their mode of operation. Bolt is an example in this category.
- Real Estate Companies: Real estate companies are small and medium enterprises that buy, sell, and rent properties. They extend services to people who have an interest in them.
- Hospitality Companies: Anything from chain hotels or motels or brothels can be regarded as SMEs. They provide hospitality services and are closer to their customers.
- Manufacturing Businesses: No matter the industry, many manufacturers can be regarded as small and medium businesses. Many of these businesses maintain revenues, assets, or the number of employees below a certain level.
How to Start and Grow Small and Medium-sized Enterprises
Some SMEs are just starting with a few employees while others have been around for many years and have a larger workforce. Some enterprises may have a physical office or store while others work from home or online. Some are usually run by a single person or very few people, while some will have tens of employees or even more. Some work on narrow niche markets but others cater to the general public. Some have a physical location, while others are virtual businesses working across the internet.
Starting a small and medium-sized enterprise means your business does not belong to larger conglomerates or parent companies like a big corporation might. SMBs are independently owned and operated. To start an SME, you will need to consider the following steps:
- Business Plan: This is where you make plans of how you want your business to look. You pick a niche or an industry. You settle the target market, location, funding, management, and business structure in your business plan. This provides you with a map and direction for your business.
- Launch Your Business: After planning your business, the next thing is to take action. Launch your business. Follow all legal steps. Get closer to your customers and offer value. Inform them about the latest solution you have for them. It will help them see reasons to patronize you.
- Marketing: Launching your SME company is a minor part of owning and growing your business. The major part is marketing. In the digital world of today, you have to take your business online to get more customers. You need a website, social media platforms, and a good digital marketing strategy. This will help your small business become more visible to the world.
Advantages Small and Medium-Sized Enterprises
Small and medium-sized enterprises offer advantages to both the entrepreneur and society as a whole. They are an important source of jobs creation, economic growth, innovation, and entrepreneurial activity. They have certain advantages in the marketplace that many large businesses can’t match. Here are some of the advantages SMEs offer:
- Lower Operating Costs: SMBs typically have lower operating costs. They have a way of making it effective, and they usually have the potential to make more profit per employee than larger ones. This means that there is often little incentive for them to grow in size.
- Flexibility: SMEs can move quickly due to their size and adapt better to change than larger companies. Big businesses are often too slow to react to market forces, focus on the wrong strategic priorities, or fail to adapt effectively to consumer needs. Whereas small and medium-sized enterprises can be more nimble and responsive in the execution of new business strategies.
- Employee Freedom and Development: Employees working in SMEs tend to do a bit of everything as well as their job, which makes them versatile. They are also given room to learn new skills and grow in the company.
- Better customer service: Smaller firms often have a closer relationship with their customers, which means that they have a good understanding of what customers want and need from them – this knowledge can be used strategically when personalizing their services or when making business decisions that will improve customer experience.
- Innovation: SMEs tend to be more innovative than large corporations. They have fewer rules and less bureaucracy, so they can make quick decisions on new product ideas or market shifts. Their smaller size makes it easier for them to make changes in their business model when needed.
- Worker Motivation: In smaller businesses, workers may be encouraged and motivated by the prospect of gaining promotion and moving up the career ladder. They tend to have more contact with senior managers who can help them with their career development.
Challenges of Small and Medium-Sized Enterprises
Small and medium-sized businesses also face different challenges – such as finding skilled workers, having access to finance, or dealing with red tape or unfair competition – depending on their size, age, sector, and location. Generally, the challenges faced by SMEs are numerous, whether it be financing, finding the right people, or creating a strong brand image. Specifically, some of these challenges include:
- Startup Challenges: The creation of new firms is often constrained by access to financing. Banks tend to only make loans to smaller businesses when they can find collateral in the form of real estate. Alternatively, these firms may have to turn to informal lenders or ‘loan sharks’ who charge exorbitant interest rates.
- Financing Challenges: Often Small and Medium-sized Enterprises can grow only once they have reached a certain size threshold where they can be financed through regular banking channels. They often lack the financial resources to adapt to market developments. In addition, the cost of borrowing tends to be significantly higher for smaller enterprises than for larger ones due to greater default risk.
- Lack of Technology: Because one of the biggest challenges of small and medium-sized enterprises is access to funding, they may be unable to afford innovative technologies or develop new products. While this may be an issue for large enterprises, they have more options and other ways to access cash. Small businesses are less likely to have these options available.
- Low Investment: SMEs frequently struggle to find investors willing to back their projects. They have several innovative projects to execute but are unable to execute them because of the absence of investors. Most times, they are forced to rely on internal funds, or cash from friends and family, to execute and manage their projects.
- Marketing Budget: Small enterprises or medium-sized enterprises often don’t have the same marketing budget as larger companies, so their messages may not reach their intended target audiences as effectively. Their budgets make them unable to hire knowledgeable marketing experts. SMEs need to rely on what their staff knows – and what they have – about running a business.
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While SMEs are a growing force to be reckoned with in the global economy, it’s still a bit niche to call them “small.” Small and medium-sized businesses have the power to change the world. With more than 100 million SMEs in the U.S. alone and many more throughout the globe, they’re truly a force to be reckoned with. Your small or medium-sized businesses can thrive in the digital world when you use the right tools for your business needs. Foenix Hub provides the relevant tools needed to have a successful business online. Learn how you can start running a successful small business by booking a free consultation today.