In a technology era and innovation are driving national economies, the terms “Startup” and “SME” have become interesting options for new entrepreneurs. But which one should you choose? And how do these two models differ? These two questions are crucial because understanding the differences between these business types can help you plan and set your business direction more precisely.
In this article, Sixtygram Agency introduce you to the meaning, distinctive characteristics, and key differences between Startup and SME, including tax measures, to help you choose the business model that best suits your vision and goals.
What is Startup?
A Startup is a business model designed to support exponential growth, making its funding approaches, company structure, and marketing methods entirely different from conventional businesses. Specifically, Startup businesses are planned to grow at least 1,000% annually, which differs from typical SME that usually grow about 15-30% per year.
For a business to qualify as a Startup, it must possess 2 key distinctive characteristics:
1. Mass Market: The ability of Startup to offer products or services typically meets the demands of extensive markets, meaning they solve problems or create value for numerous people. Examples include ride-hailing applications that resolve transportation issues nationwide, or online learning platforms that make education more accessible to everyone. The market size must therefore be substantial enough to enable exponential business growth.
2. Fast Market Entry: The ability to access large markets quickly and efficiently is crucial. Currently, many startups use technology as a key tool for expanding their customer base, such as selling and developing products through e-commerce platforms that can simultaneously reach customers nationwide through online systems. This approach eliminates geographical limitations and constraints of physical products by transforming them into digital offerings. With this ability to manage rapid growth, startup can easily achieve growth rates exceeding 1,000% annually.
What is SME?
SME (Small and Medium Enterprises) refers to small to medium-sized businesses operated by small-scale entrepreneurs with limited investment capital and few employees. According to relevant SME legislation, they are categorized into 3 types based on size:
- Micro Enterprises (XS)
- Employees up to 5 persons or Annual Revenue up to 1.8 million THB/year
- Small Enterprises (S)
- Manufacturing: Up to 50 employees or annual revenue up to 100 million THB/year
- Trade/Services: Up to 30 employees or annual revenue up to 50 million THB/year
- Medium Enterprises (M)
- Manufacturing: Up to 200 employees or annual revenue up to 500 million THB/year
- Trade/Services: Up to 100 employees or annual revenue up to 300 million THB/year
SMEs are characterized by being primarily self-funded or financed through bank loans, focusing on tangible business operations such as manufacturing, trade, and services. With independent management, SMEs typically grow at a steady rate of 15-30% per year, prioritizing profitability from the outset and emphasizing long-term sustainability for future succession.
With a relatively small organizational size, SMEs can closely engage with customers, making them a vital pillar of the economy by creating jobs and distributing income to local communities. While they may face limitations in scaling, their stability and long-term sustainability remain strong advantages.
Key differences “Startup vs SME“
If you’re starting a business or considering a shift in your business model, understanding the key differences between a Startup and an SME can help you plan and define your growth strategy more effectively. Here are 7 key distinctions to consider.
1. Growth Objectives
Startups focus on rapid, exponential growth of 1,000% or more per year, driven by highly scalable business models. In contrast, SMEs grow steadily at a rate of 15-30% per year, prioritizing stability and long-term sustainability.
2. Funding Sources
Startups rely on external investors, particularly venture capitalists, who accept high risks for potentially high returns. In contrast, SMEs are typically funded through personal savings or bank loans, which involve lower financial risk and cost.
3. Business Model
Startups focus on innovation and scalable technology-driven solutions without physical limitations. In contrast, SMEs operate traditional businesses centered on tangible products and services, often constrained by production capacity or service area expansion.
4. Risk Management
Startups embrace high risks when experimenting with new business models, aiming for potential returns of 50-100 times their investment. In contrast, SMEs take a more conservative approach, prioritizing financial stability and long-term business sustainability.
5. Organizational Structure
Startups have a flexible structure that adapts quickly to change and supports rapid growth. In contrast, SMEs follow a traditional hierarchy with clear chains of command and structured management for stability and control.
6. Marketing Strategy
Startups prioritize rapid user base expansion, often before generating revenue, leveraging technology and innovation to scale. In contrast, SMEs focus on immediate profitability, targeting niche markets with predictable returns.
7. Long-Term Goal
Startups typically plan for an exit strategy, such as acquisition or IPO, to maximize investor returns. In contrast, SMEs focus on long-term sustainability, aiming for steady revenue growth and business succession to the next generation.
Comparison of Tax Benefits for SME and Startup
Tax benefits for Startup and SME vary significantly between Thailand and other countries.
In Thailand, SMEs benefit from a reduced corporate income tax rate of 15% on net profits between 300,001 and 3,000,000 THB and 20% on profits exceeding 3,000,000 THB. They are also eligible for additional tax deductions on asset investments, employment, and employee training, as well as a VAT exemption for those with annual revenue below 1.8 million THB/year.
Thai startups receive greater tax incentives, especially those registered with the National Innovation Agency (NIA). They can enjoy up to eight years of corporate income tax exemption on revenue from promoted activities. Additionally, the Capital Gains Tax Exemption allows individuals and corporations to be exempt from taxes on profits from selling startup shares. Angel investors can also claim a tax deduction of up to 100% of their investment. Moreover, startups in targeted industries may qualify for BOI investment promotions, which offer additional benefits such as exemptions on import duties for machinery and raw materials.
In Global, many governments actively support startups through various tax incentives. For example, Singapore’s Tax Exemption for New Startups (FTE) grants a 100% tax exemption on the first SGD 100,000 of income for the first three years and a 50% exemption on the next SGD 200,000. In the United States, the R&D Tax Credit offers up to 20% tax credit on research and development expenses, allowing startups to offset up to $250,000 per year against payroll taxes. Meanwhile, the United Kingdom’s Seed Enterprise Investment Scheme (SEIS) enables investors to deduct up to 50% of their startup investments from their taxes and exempts capital gains tax on shares held for over three years.
The differences in tax benefits between Startup and SME reflect government policies aimed at fostering high-growth, innovative businesses while continuing to support SMEs as the backbone of the economy. These tax incentives are tailored to match the scale and nature of each business type, ensuring both sectors receive appropriate support for sustainable growth.
