From Startup to SME: a harsh path through thorns to the stars

Startups embody innovation, bold risk-taking, and a drive to disrupt industries. While many aim to achieve unicorn status, a more practical and sustainable objective is evolving into a Small-Medium Enterprise (SME). This evolution signifies not only survival in a competitive landscape but also a clear pathway to stability and scalable growth. This process involves mastering internal business drivers and adapting to external factors while navigating well-defined growth stages. 

Moving from a startup to an SME is a shift from exploration to consolidation. Startups are often characterized by agility, innovation, and the pursuit of a product-market fit. SMEs represent a stage where revenue streams are more consistent, the focus expands from innovation to process optimization, and organizational structure, roles, and responsibilities become more formalized. The transition does not happen overnight instead it is the culmination of deliberate actions to solidify the business foundation while maintaining agility.  

In the world of business, growth rarely happens by chance. It is shaped by a complex interplay of factors within and beyond an organization’s control. These factors, known as internal and external drivers, determine how a business operates, adapts, and thrives in an ever-changing landscape. Understanding and mastering these drivers is essential for any company looking to achieve sustainable success. Internal drivers are factors that businesses typically have direct control of, making them essential for operational efficiency and strategic alignment. External drivers come from outside and are often beyond its direct control. While companies can not control these forces, they must adapt to them to remain competitive.  

Key Examples of Internal and External Drivers 

A startup's journey to SME status typically follows a series of growth stages. Each stage presents unique challenges and opportunities that require different internal and external considerations.  

1. The startup phase tests the business idea and finds product market fit. Key internal drivers for this phase are creativity, agile development, and small teams. However, as important are the external drivers, early adopted feedback, market gaps, and funding opportunities. What makes it challenging is balancing innovation with resource constraints. 

1. The early growth phase focuses on scaling sales and establishing revenue streams. At this phase, hiring skilled employees and building customer support systems become the most valuable internal drivers.  External pressure, such as attracting investment, responding to competitors, and managing cash flow to fund expansion without losing focus on product quality, starts raising the stakes.  

1. Entering new markets or broadening customer segments is the focus of the expansion and scaling phase. Automating processes, optimizing the supply chain, and refining roles are continuous. Market research, partnerships, and regulation compliance ensure a place in the competition. But the real challenge is ensuring that growth does not compromise service quality or company culture.  

1. Finally, when the startup has reached its maturity, we can say it is in its SME phase. The full focus is on stability, customer retention, and profitability. The company refined its organizational structure, uses resources efficiently and leadership empowers its adaptability. Brand reputation, economic stability, and long-term customer loyalty become the key external drivers. However, innovating to remain competitive while managing risks becomes more challenging.  

Key Findings 

What strategies will smooth the transition then? Well, a change in the business model should be considered. Factors including implementing new technologies will streamline operations and improve decision-making. Focusing on building a robust revenue model that supports predictable cash flow and minimizes dependency on external funding. Monitoring market changes by continuously tracking industry trends, competitors, and regulatory developments will guarantee staying ahead and holding the market share. However, the shift from acquiring customers to building loyalty through personalized experiences and value-added service will strengthen customer relationships and will be the basis for sustainable growth.   

Of course, it would give a real-life example of Supercell’s success story. Supercell, a Finnish startup in mobile gaming, managed to mature into an SME by focusing on a small but scalable philosophy and maintaining lean teams while producing globally successful games. Another great example would be Spotify, which started as a disruptive startup in the music streaming industry. Through its transition to SME, it established a sustainable subscription-based model and invested in partnerships.   

Challenges Along the Way 

The journey is not without challenges. It demands a careful balance between preserving the innovative spark of a startup and embracing the operational discipline of an SME. Growing businesses may become bogged down in processes and lose the nimbleness that made them successful. Balancing structure with adaptability, and innovation with resources is critical. Startups thrive on a dynamic and innovative culture, which can consume as the team grows because limited budgets and time make it critical to prioritize experimentation without overextending. Preserving core values while accommodating new employees is the key. Shifting from venture capital dependency to sustainable operations requires rigorous cash flow management and control as rapid growth can strain resources, potentially diluting service quality or undermining company culture. Balancing the need for ongoing innovation with risk management is a persistent challenge for mature SMEs. Companies that navigate this path successfully lay the foundation for sustained success and potentially greater milestones, such as becoming a large enterprise.  

Conclusion 

The journey from a startup to an SME is a transformative process that embodies growth, adaptability, and the ability to balance competing priorities. Startups thrive on agility, creativity, and a willingness to take bold risks, while SMEs focus on stability, scalability, and structured operations. Successfully navigating this evolution requires businesses to master internal and external drivers at each stage of growth from finding a product-market fit to building lasting customer loyalty. 

While challenges such as preserving innovation, managing resources, and maintaining company culture are inevitable, they are surmountable with deliberate planning and strategic execution. The stories of Supercell and Spotify serve as powerful examples of how businesses can achieve this delicate balance, scaling sustainably while retaining their core values. 

Ultimately, the transition from startup to SME is not just about achieving growth but also about laying the groundwork for long-term success. By embracing change, optimizing processes, and remaining customer-focused, businesses can ensure that their journey is not just a phase but a foundation for even greater milestones ahead.  

Further reading 

For further reading, I would recommend these articles: 

• Haifa Haddad , Jörg Weking, Sebastian Hermes, Markus Böhm, &  Helmut Krcmar (2020): Business Model Choice Matters: How Business Models Impact Different Performance Measures of Startups
• Eric G. Flamholtz & Yvonne Randle (2007): Successful Organizational Development and Growing Pains
• Steven H. Hanks (1990): The Organization Life Cycle: Integration Content and Process

Biography 

Sonita Sajid is a finance-oriented person focused on developing finance and administration processes. Her career consists of various positions in technology companies that have produced software, services, and products in space, healthcare, nuclear, and beauty industries. Currently, she is a Financial Controller at Revieve Oy and has been with the company for over three years. She is also a full-time and devoted mother to two minor children and a dog. Her key motivation comes from finance's daily routine tasks, but from time-to-time rush and challenges in working tasks that require knowledge, experience, and some analytical skills. Her passion is to learn and develop herself continuously therefore, she is keen on everything. For Sonita, balancing work-life means careful and effective time management to leave work-related thoughts to work and enjoy time with family and friends as well as travel the world and spend time in Finnish relaxing nature.