Redefining Sri Lanka’s SMEs: Why we must separate businessmen from true entrepreneurs

Sri Lanka’s economic growth depends on harnessing the true potential of entrepreneurial SMEs

In Sri Lanka, the word “entrepreneur” has become a catch-all phrase, used indiscriminately by politicians, media, academics, banks, and professionals alike to describe virtually anyone engaged in small or medium-sized business activities. While this may seem harmless, it masks a critical issue—an urgent need to distinguish between two fundamentally different groups operating under the broad Small and Medium Enterprise (SME) umbrella. 

The problem with current SME and entrepreneurial labels

SMEs constitute over 90% of businesses in Sri Lanka and generate around 52% of employment. Yet, their contribution to national GDP stands at approximately 30%, a figure significantly lower than that of large enterprises. This discrepancy raises an important question: if most businesses are SMEs, why is their economic output relatively limited? 

The answer lies in the diversity within SMEs themselves. Many operate as “typical businessmen” — enterprises primarily focused on survival, income stability, and maintaining a modest livelihood. They generally avoid risks, innovation, or aggressive growth strategies, and their economic impact is correspondingly limited. 

On the other hand, a smaller segment represents “true entrepreneurs”—visionary actors who innovate, disrupt markets, and aim for scalability and value addition. These enterprises, though fewer in number, contribute disproportionately to economic growth, innovation, and job creation.

Lumping these two distinct groups together under the single SME label and calling both “entrepreneurs” is not only misleading but counterproductive. It obscures the unique challenges and needs of each segment, leads to misallocated government resources, and blurs public understanding of what entrepreneurship truly means.

Why distinguishing between businessmen and entrepreneurs matters

When policymakers treat all SMEs the same, support programs often focus heavily on survivalist needs—basic financing, minimal regulation, or general business skills training. While this assistance is vital, it misses the opportunity to nurture scalable, innovation-driven firms that could transform Sri Lanka’s economy.

Moreover, media narratives that glorify every small business owner as an entrepreneur can dilute the entrepreneurial brand, making it difficult to identify and celebrate true innovation and growth. This confusion also affects investors, institutions, and ecosystem builders who seek to channel capital and support towards high-potential ventures.

Proposal for new terminology: Clear segmentation within SMEs

To address these issues, it is essential to introduce a clearer classification based on behavioural and strategic intent rather than just business size. I propose adopting the following terminology:

Businessmen SMEs: These enterprises primarily focus on income generation, stability, and operational continuity. They tend to be risk-averse and operate within established market norms without a strong emphasis on innovation or growth. Examples include neighbourhood retail shops, small service providers, and family-run businesses focused on livelihood preservation.

Entrepreneurial SMEs: These firms are driven by opportunity recognition, innovation, and scalability. They actively seek to disrupt existing markets or create new ones and prioritise value addition, competitive advantage, and business transformation. Examples include technology startups, export-oriented manufacturers, and innovative agro-processors.

This segmentation aligns with global frameworks like the OECD’s distinction between entrepreneurial and traditional SMEs and the Global Entrepreneurship Monitor’s categorisation of necessity-driven versus opportunity-driven entrepreneurs. It also facilitates a more nuanced understanding of enterprise dynamics in Sri Lanka.

Proposed typology of enterprises

To reflect the complexity of the SME sector and to better align policy interventions, I propose the following typology:

Survivalist enterprises:

Informal, low-capital, necessity-driven

Aim: Subsistence income

Contribution to GDP: Minimal, but socially significant in employment

Example: Street vendors, home-based services

Stabilised enterprises:

Formalised, niche-serving, modestly profitable

Aim: Long-term sustainability without aggressive growth

Contribution to GDP: Moderate

Example: Local retail shops, small manufacturers

Scalable entrepreneurial enterprises:

Formal, innovation-led, opportunity-driven

Aim: Market expansion, transformation, export readiness

Contribution to GDP: Disproportionately high compared to size

Example: Tech startups, advanced agro-processors

Value-driven enterprises:

Businesses explicitly designed around a unique value proposition or value addition, often integrating social, environmental, or product innovation

Aim: Market differentiation, long-term stakeholder value

Contribution to GDP: Variable, but often includes spillover benefits like brand equity, sectoral modernisation, or social inclusion

Example: Ethical fashion brands, green tech ventures, traceable agro exports

Policy and ecosystem implications

Adopting this classification can help policymakers design differentiated support mechanisms:

For survivalist enterprises: Focus on social safety nets, financial inclusion through microcredit, business continuity support, and informal sector formalisation. 

For stabilised enterprises: Provide assistance with formalisation, modest business improvement programs, and access to local market linkages.

For scalable entrepreneurial enterprises: Prioritise access to venture capital, innovation grants, research and development incentives, export facilitation, and capacity building in strategic management and scaling.

For value-driven enterprises: Encourage initiatives that support sustainable business practices, social impact investments, and sectoral modernisation efforts.

This approach ensures resources are allocated efficiently, encourages high-impact entrepreneurship, and maintains inclusive support for all business types.

Media and academia also have critical roles to play by using precise language when reporting on business and entrepreneurship, which will foster a more accurate public understanding.

Conclusion: Towards a more productive entrepreneurial ecosystem

Sri Lanka’s economic growth depends on harnessing the true potential of entrepreneurial SMEs. Recognising and valuing the difference between routine businessmen and transformative entrepreneurs is not just a matter of semantics—it is a strategic imperative.

By refining how we classify and support businesses, Sri Lanka can better nurture innovation, attract investment, and create sustainable jobs that elevate the entire economy.

It is time for all stakeholders—Government, media, professionals, academics, and entrepreneurs themselves—to embrace a clearer, more actionable framework. Doing so will not only enhance economic outcomes but also strengthen the nation’s entrepreneurial ecosystem for generations to come.

(The writer is Founder/Chairman – DPR Investment Consultants Ltd.)