What Is SME? How Small- and Medium-Sized Enterprises Work

Small and medium-sized enterprises (SMEs) typically are businesses with fewer than 500 and 1,500 employees, respectively, and less than $47 million in annual revenue. They aren’t the kind of big-box retailers you’ll find in shopping centers across America, and you probably won’t see their names listed on the New York Stock Exchange. But they’re a major engine of economic growth.

SMEs account for nearly half of all private-sector jobs and make up the vast majority of American businesses overall, according to the US Small Business Administration (SBA). These enterprises deliver unique benefits for customers, including personalization and specialization that larger companies are not always able to deliver.

Learn more about how SMEs operate and five strategies for finding success with your SME.

What is an SME?

An SME is a small to medium-sized enterprise. SMEs are characterized differently depending on the country or region in which they operate, and the criteria for an SME can vary by industry. Generally, however, SMEs are defined by two factors: a company’s staff headcount and its total annual income.

The United States Small Business Administration (SBA) defines small to medium-sized enterprises as those that employ fewer than 500 or 1,500 people, respectively, depending on the industry. SMEs can generate up to $47 million in average annual receipts, according to the SBA. These sectors include retail, which encompasses everything from grocery stores to clothing shops. The SBA’s guidelines are important in part because they determine which companies are eligible for federal loans, but they’re far from the only rubric in this space.

The Organisation for Economic Co-operation and Development (OECD), an intergovernmental agency consisting of 38 member countries, including the US, defines SMEs as companies with fewer than250 employees. Unlike the SBA, the OECD distinguishes between small and medium-sized companies; the former is any business with 10 to 49 employees, while the latter can employ anywhere from 50 to 249 people. Companies with 250 or more employees are considered a large enterprise, regardless of revenue.

The European Union uses similar criteria for SMEs, defining them as any enterprise with fewer than 250 people. It also distinguishes between small and medium-sized companies using the same numeric employee cap as the OECD. Under an additional metric from the EU, small enterprises cannot exceed €10 million in annual sales revenue. For medium-sized businesses, the cap is €50 million, roughly on par with the SBA’s definition.

Strategies for success as an SME

• Do your research and think outside the box
• Focus on perfecting a core product first
• Build your community with helpful, consistent content
• Experiment with flexible and short-term retail spaces
• Stay the course and stick to what makes your business unique

There’s no official guidebook for operating an SME and no one right way to find success, but lots of founders and entrepreneurs have spent many years figuring out what works best for them. Five of them share their best tips for small and medium-sized enterprises:

Do your research and think outside the box

Getting to know your industry from all sides, even as an outsider, can help you find your niche—and maybe even disrupt the status quo. Before launching what would become a multimillion-dollar spice business, Diaspora Co. Founder Sana Javeri Kadri spent about seven months traveling to spice farms in India to meet suppliers firsthand and better understand the existing market.

Through her hands-on research, she discovered “this really beautiful variety of turmeric that was growing in Andhra Pradesh,” Sana says on an episode of Shopify Masters. “It’s a variety called Pragati turmeric, and it was the most floral bright variety I’d ever seen.” Nearly a decade later, Pragati turmeric is one of Diaspora Co.’s bestselling products.

Sana didn’t always know that her research would lead to starting an enterprise. At first, she thought the trip to India would result in a photography project focused on turmeric farmers. But as she learned how the spice trade worked, she became convinced there was an opportunity to disrupt the way business had historically been done.

“The more I researched the industry and met farmers, the more it felt like, ‘Wait, nobody’s doing this very well,’” Sana says. “Twenty-two-year-old me was like, ’Oh, I think we should start a business.’”

Focus on perfecting a core product first

It may be tempting to expand as soon as you’ve seen some success, but there can be a lot of value in taking it slow. “Become famous for your core product, and then start to expand,” Birdy Grey Cofounder Grace Lee Chen says on Shopify Masters. “When do you expand, test and learn before going all-in.” 

Grace would know. She cofounded Birdy Grey in 2017 after identifying an often-overlooked category in the $100 billion wedding industry: bridesmaid dresses. Birdy Grey expanded into menswear—groomsmen need affordable, stylish apparel, too—in 2025, but only after spending years honing its initial product.

Build your community with helpful, consistent content

Many SMEs use newsletters and social media to grow their following. This content marketing needn’t always be promotional; some cultivate their audiences through editorial content independent of their core product. Los Angeles specialty roaster Canyon Coffee, for instance, sends two to three newsletters weekly.

“We do journals, interviews with artists, musicians, chefs, content that’s not related to coffee that people, I think, have found inspiring through the years,” says Canyon Cofounder Ally Walsh on an episode of Shopify Masters. Over the years, the brand has also published travel guides, playlists, and recipes—content Ally says has been consistent across the newsletter’s history. Growing your content and engagement organically and consistently is key, she adds.

Experiment with flexible and short-term retail spaces

Signing a lease for a brick-and-mortar space can help retail-based SMEs reach new customers and build trust with existing customers, owing to face-to-face interactions and physical experiences. But moving into a storefront can also mean contending with space and inventory storage limitations while potentially being locked into a costly long-term lease. There are additional operating costs to consider, like insurance and cleaning.

Before making a long-term commitment, explore your options and figure out whether the location of the retail space aligns with your potential customer base. You’ll also want to think ahead—researching new developments and potential zoning changes in that neighborhood in the years to come so you have the full picture.

If you’re unsure about the time and expenses associated with a retail lease, consider options with a lower commitment threshold. For example, pop-up shops help SMEs test new markets and products flexibly.

“There potentially is somebody in the neighborhood that your product could complement,” Natalie Westlake, SVP of marketing and operations for jewelry company Bluboho, says on Shopify Masters. “If you could take a small bit of space inside somebody’s shop, partner with them, pop up for a short period of time and test that audience, you’ll get a good idea of how it’s received in that area.”

Pop-up shops aren’t always a collaboration between two retail brands. They can also be seasonal, experimental, or even virtual, with total ballpark costs ranging from an estimated $2,300 for a one-day in-store event to upward of $13,000 for a virtual pop-up. Collabs, meanwhile, can run anywhere from roughly $4,000 to $20,000, with costs typically shared between partners.

Stay the course and stick to what makes your business unique

If you experience success with your products and services, chances are you may soon face another challenge: Bigger businesses could attempt to copy you, potentially selling dupes made differently or at a lower price point. Your impulse might be to make your business more like your competition’s by attempting to serve every type of customer, but there’s power in resisting that reaction. 

“When confronted with competition and the need to say, ‘How do I outcompete them?’ my perspective is like, continue to double down on what you do and get more aggressive, dig down deeper into what you do,” Gloria Hwang, who founded the bike helmet company Thousand in 2015, says on an episode of Shopify Masters.

“If you try to be like your competition, unfortunately, you just do what your competition does, but worse—because that’s not your skill set.” Ultimately, Gloria says, SMEs should lean into their particular strengths, rather than trying to cast a wider net. After all, SMEs can understand and deliver on their own unique customer insights.