Difference between a Startup and an SME? It’s a word that starts with P

By Sreeraman Thiagarajan

My first job was in 2002, at a bank where I was facilitating the sales of liability products. During the first week of training, we were made aware of the difference between a current account and a savings account: ‘Interest’.

Earlier this year, I was privileged to be among a panel of the jury for SIDBI and The Economic Times ‘India MSE Awards’, which reinforced the fundamental difference between a startup and an MSE business: ‘Profit’.


Recently I noticed ads in ET soliciting nominations for the next round of MSE awards, which made me pen down some thoughts about profit in an era when going IPO without a dime in profit is totally acceptable. Uber and Lyft are perfect examples.

Make no mistake in assuming that the small and medium businesses we are discussing here is not like your neighborhood Kirana store, but we are talking about companies with turnover in the range of a few crores to Rs 25 crores per year with an employee count between ten to 250 and most notably they must have positive net worth and behold, profit!

The last word in the above sentence is like Voldemort’s name in Harry Potter movie- thou shall not mention the P word in a startup world. But in here, it is a bragging right, the raison d'etre for a business men and women starting and running an MSE.

A little over 4500 entries were received for the ET awards, they were distilled to final 24 through several rounds of short listing across three cities by CRISIL, who’s the knowledge partner. I was among a nine-member jury, which was further divided into a cohort of three juries per room. We had to meet, interact, inquire, and adjudge 8 entries per cohort. Here’s what I learnt:
Successful entrepreneurship transcends age: I met an MSE run by a founder whose experience stands at a little over 30 years. Another gentleman started the venture a decade ago when he was in his fifties. Both businesses are near monopolies in the niche they operate, the former in innovative, high quality concrete spacers and block, the later in developing software for chemical plants. Both of them had years of experience before they spotted a latent need, built solutions ground up and made it into a viable business that is yielding… profits. (I just like saying this P word over and over).

In a world where startups are influenced by infamous sayings like ‘move fast; break things’ the journey and achievements of these doyens are a soothing antidote.

Ingenuity can be an acquired trait: Eureka moment is overrated in the world of startups, magazines and media interviews, even glorify them as though epiphany has immense economic value. In the real world, profit making ideas does not have to be labor of day dreams. This was a key learning when another entrepreneur who narrated his 3-year long journey. He started from working on the shop floor at Tata Motors where his erstwhile manager wished some of the assembly line problems could solved, to all the little details about how his father persuaded him to come back to India after higher studies in UK, which led to him starting a business in Pune. Today, he builds gantry robots and handling machineries that helps auto assembly lines work efficiently and in a completion of a karmic cycle, his first client was Tata Motors.

An ugly caterpillar can turn into a butterfly: Service businesses are seldom funded, from the annals of Sand Hill road in Silicon Valley to the dusty lanes of Koramangala. There are umpteen stories of how founders with service business models are turned down by VCs, for they are not scalable through rapid capital infusion. But I met more than one MSE owner who started as a pure play service business, bootstrapped, was scrappy, got real clients and revenue, and then the P word happened. They are now morphing into a product / platform business by adding technology components while slowly outgrowing the dependencies on revenue from service business. The opposite of this is quite boring, the dot com businesses who were incarnated as ‘beautiful butterflies’ when founded are now opening physical stores and increasing sales force to survive the downfall or until the next round of funding.

Never second judge an entrepreneur from an arm chair: I grew up looking at my father who was an entrepreneur all his life. He may not have built a unicorn, but never failed to provide for the family. But growing up, I used to endlessly argue with him about how better decisions could have been taken, why some units must have never been hived off, truncated, or expanded, how we must have diversified, and so on. An entirely futile postmortem exercise that only caused empty arguments punctuated with ifs and buts.

As a jury on the comfortable side of the table, vested with authority to interrogate the nominees of their past judgements, I had to relive both agony and joyous moments from my own entrepreneurial journeys, for I’ve had many brickbats than bouquets. And every time someone questioned the rationale behind my decisions, it would bruise the ego, but also kindle the fire within to do it right the next time with an aim of proving the world wrong.

As a mentor for several startup programs I have been oriented and trained to ‘teach them to fish, and not to provide a fish’. However, being a juror and adjudging businesses that has a positive P word on their balance sheets is akin to asking a parent to pick his or her favorite child. In the end, I settled for a more lenient moral bent. May the first amongst equals win.

(The writer is co-founder of Agrahyah Technologies. He tweets @sreeraman.)