AND WHY DIFFERENT LEGAL APPROACHES ARE NEEDED TO PROVIDE LEGAL SERVICES TO EACH TYPE OF ENTREPRENEUR.
STARTUPS AND SMEs ARE NOT THE SAME.
I make this point because the two are often used interchangeably when talking about entrepreneurs. An entrepreneur, defined by Merriam-Webster is “one who organizes, manages, and assumes the risks of a business or enterprise.” While startup founders and SME business owners are entrepreneurs, their business models and end goals are very different.
The differences between Startups and SMEs are so significant that to not understand the difference would make any attempt to run a successful business futile. The unique needs of Startups and SMEs have to be observed in any aspect of developing business strategies or business plans. Their uniqueness is also a factor in the provision of legal services to entrepreneurs.
So before I go further on the last point, I wanted to describe some of the fundamental differences between Startups and SMEs.
- Quick growth enterprises, temporary in nature, highly innovative with scalable ways of making money.
- Starting with an idea, startups create new markets by being unique while building on experience as they grow.
- Risky in nature, startups are unpredictable.
- They are financed by raising investment from angel investors and/or venture capitalists, trading ownership for money to develop their product/service.
- They look for repeatable and scalable models to make money, do so quickly, and takeover targeted markets.
- The end goal of startup founders is to have a successful exit strategy- usually either going public (IPO) or get acquired by a bigger, established company.
- Traditionally structured business and profit oriented from day one.
- Working in the known – SME entrepreneurs know:
- their product/services;
- their customers;
- know the local markets they target (or at least seek to have this knowledge from the onset); and
- how they are going to generate revenue.
- Stable in nature, SMEs are slower growth enterprises seeking stable long term value and potential for success.
- Financing through debt financing loans, while maintaining complete ownership structure.
- The end goal is to have a successful business and remain in business permanently,
WHY DIFFERENT APPROACHES ARE NEEDED TO SERVE THE LEGAL NEEDS OF STARTUP FOUNDERS & SME BUSINESS OWNERS
Startup founders need a legal approach that embraces the quick-paced, high-risk nature of the way startups develop their MVP and how they make the money to do it. As founders look for repeatable business models and ways of scaling while working under changing ownership structures, they need a maleable legal approach. Startup founders need legal services that not only move at the pace they operate, but that can also address the changing and uncertain environment in which startups operate. They need an approach to law that plans & strategizes the potential future steps they need to take to achieve the exit strategy that best serves the needs of the company. In other words, startups need a legal approach that acts as the headlights of a car driving down a dark, windy country road.
In other words, startups need a legal approach that acts as the headlights of a car driving down a dark, windy country road.
SME business owners, on the other hand, need a legal approach that embraces the traditional aspects of these enterprises, while also acknowledging: 1) the increase level of sophistication business owners have with the law; and 2) that legal tech that can allow SME business owners to tackle their own legal issues. In this capacity, the legal approach for SME business owners, especially those expanding cross-borders, is to use the law as a guide that works with their business strategies and business plans. In this role, the law and legal services serve as a planning or strategic tool in: 1) the creation of economic stability; 2) maintaining economic success; 3) fostering business expansion goals.
The legal approach for SME business owners, especially those expanding cross-borders, is to use the law as a guide that works with their business strategies and business plans.
Startup founders and SME business owners may both fall under the category of entrepreneurs, but they are very different types of entrepreneurs. The difference in their approaches to business creates different legal needs, and thus different legal approaches.
The views expressed in this article do not constitute legal advice and legal information provided in this post should not be relied upon as legal advice. Please contact an Attorney for advice on your specific matter.
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