You hear the terms ‘Small Business’ and ‘SME’ (small and medium size enterprise) all the time. In some contexts they refer to very small business – a husband and wife team, or a sole business operator. Others would refer to these businesses as micro-businesses. There’s significant differences between what people think they are, and what investors label these companies. If there is confusion, it is compounded by the fact that everyone wants to look bigger than they are, so a business that has grown to a few million dollars in revenue will feel compelled to begin calling itself a medium size business.

There’s also international variations in these terms. In Australia “small business” seems to mean owner operated companies up to thirty or fifty staff. Beyond that, they start to call themselves a medium size company. In the US by contrast, anything less than about $100m in turnover is considered small, and our Australian version of small would be considered “microbusiness” or a cottage industry. The factors seem to be related to size and ownership, but are non definitive.

By way of example, in “Small Giants” by Bo Burlingham http://www.smallgiantsbook.com/ there is a “small” brewing company used as an example which has a turnover of a few hundred million dollars. This is probably small compared to the brewing giants, but it is still a significant company. (In this context it was labelled small because of its structure and because it was still run by its founder).

There are similar confusions over what businesses call themselves at various stages of development. For example… “Startup” for some implies a concept of a company – similar to the companies that popped up overnight in the dotcom boom with almost no plans, just a domain name and a few people with a desire to sell petfood over the internet. For others, “startup” might mean a five year old company that has a reasonable trading history, but has a new strategy that requires funding to get new momentum.

Investment terms are also used somewhat freely, and without a lot of accuracy – private equity, venture capital, angel investment. Sometimes these terms are clear cut and sometimes a deal might come together that is somewhere in the middle. What one person calls venture capital finance another will call private equity. Even investments vary. Even within a given investment, the cash might be contributed as equity or as debt. Or it might start out as debt but be converted to equity. The overarching terms of venture capital and private equity fit all these scenarios.

The lesson from all this is: definitions are less important than actual business plans and people, and actual dollars. What IS important is how you convey your opportunity to a prospective investor with clarity on your market, the opportunity you have, what you want from them, and what they get out of it. The actual terms used are less important than the deal itself.

“Small Business” and other confusing terms is a post from: Venture Capital Centre. Click Here To Download Our Free E-Book Explaining Exactly How To Create A Business Plan That Investors Will Read