SME stands for small and medium-sized enterprise. In every corner, I read positive things about SMEs. The most striking one so far is coming from the 2005 report of the European Commission, stating that the more than 20 million SMEs in Europe represent 99% of businesses1, and therefore, they are the key driver of economic growth. Such an encouraging statistics!

 

In the article why startups fail according to their founders, however, it reported that 90% of startups fail2. So it is not entirely clear whether the micro enterprises (which include the self-employed/ non-employer businesses, startups, freelancers, one person companies, and aspiring entrepreneurs) are part of the S in SMEs. Thanks to the European Commission for releasing a modified version of its 2003 official definition of SMEs. Taking into account the economic developments (inflation and productivity growth) since 1996, the 2005 version clearly distinguishes a small from medium and SMEs from micro enterprises based on staff headcount and annual turnover or annual balance-sheet total (see table 1).

 

Table 1. Definition of micro, small and medium-sized enterprises (Europa, 2005)3

Enterprise Size Staff Headcount Annual Turnover Annual Balance-Sheet Total
Medium < 250 persons ≤ € 50 million ≤ €43 million
Small < 50 persons ≤ € 10 million ≤ € 10 million
Micro < 10 persons ≤ € 2 million ≤ € 2 million

 

From this tabular definition of what constitute micro, small and medium enterprises, it’s therefore clear that micro enterprises are not a part of the S in SMEs. Nevertheless, just as a family is the fundamental unit of a society4, so are the micro enterprises in the SME sector. Empowering the micro businesses can enable them to become nascent firms and potential SMEs. And according to a study5, these enterprises serve as vehicles for entrepreneurship, which is acknowledged as a driver for economic growth, competitiveness and job creation.

 

Going back to the definition, I’m still wowed by it and wondering how many of today’s existing micro enterprises have the capacity to earn an annual turnover of less than € 2 million? Taking into account that 90% of startups fail, how can micro enterprises even become nascent when they are already doomed to failure? Do startups, one-man business owners, freelancers, sole proprietors, or ZZPers (as they call it in the Netherlands) even think that they or other micro enterprises can reach an annual turnover of € 1 million or 2? What are your thoughts on this?

 

REFERENCES

1 European Commission. (2005). The New SME Definition: User guide and model declaration. Retrieved from 05 August, 2015 from http://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf.

2Griffin, E. (2014). Why startups fail, according to their founders. Fortune. Retrieved 05 August, 2015 from http://fortune.com/2014/09/25/why-startups-fail-according-to-their-founders/.

3Europa. (2005). Definition of micro, small and medium-sized enterprises. Retrieved from 11 Augut 2015. http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:n26026

4Carlson, A. World Family Policy Forum 1999. Retrieved 7 August 2015. http://www.law2.byu.edu/wfpc/forum/1999/carlson.pdf

5 Thurik, R. and Wennekers, Sander. (2001). Entrepreneurship, small business and economic growth. Journal of Small Business and Enterprise Development. Retrieved from 7 August 2015. http://www.emeraldinsight.com/doi/abs/10.1108/14626000410519173