What is a Micro Business? Top Things You Need to Know

The past few years have been seismic for labor markets and US businesses. As more and more people reassess their priorities and look to fulfill the goals and dreams they’ve put off in their lifetime, there has been a crisis of sorts. People resign from their jobs in large droves and champion an influx into starting up new businesses, particularly micro businesses.

This trend has been so pronounced that the US Census Bureau announced that it would start tracking business formations in the US beginning in December 2021. Millions of new businesses are set up every year. Many of these are micro businesses, technically defined as those that employ less than ten team members. According to one study, about 92% of all US businesses are micro businesses. Needless to say, they are an important segment of the American economy. Below we look at the top things you need to know about micro businesses, what they are, their different types, their benefits, and the disadvantages they face.

What is a Micro business?

A micro business has to specific definition assigned to it, and often it varies from market to market. SBA defines a micro business as having less than ten team members. Other definitions at state labor departments may measure them by a revenue marker, usually less than $250,000 annually. Some states may define a micro business as an entity with a sole proprietor without team members. In contrast, others may classify any business with fewer than five team members or $25,000 revenues per year as a micro business.

It is important to note that the micro business industrial complex is still budding formation. There is no such thing in the US as the Small Business Administration, which has government funding based on size guidelines. There is no such classification or specific government body for micro business.

Different types of micro businesses?

Micro businesses can be of many different types. Below are some common examples of micro businesses.

Freelancers – Often classified as a gig economy phenomenon, freelancers have exploded over the past few years. They have lit a charge under platforms such as Fiverr and Upwork. This work is often romanticized by pictures and memes of individuals working on their laptops from the beach. While the majority of all freelances don’t work in this manner, this caricature exemplifies the draw of freedom and mobility this microcosm of work style offers, compared to a corporate nine-five desk job. Writers and social media influencers all fall in the freelances category.

eCommerce – this has been another area of growth for the creative and artistic types over the past several years and has established platforms such as Etsy and Shopify. Such businesses are small given that a select number of employees work on designing and producing products and then managing the logistics of packaging and shipping those goods.

Brick-and-mortar – these are often what has been known as the ‘mom and pop’ stores. These physical stores have client-facing businesses that employ less than ten employees, often even less than five employees. Think of the local convenience store, hardware shop, barbershop, or dry cleaners.

Benefits of a micro business

One of the key benefits of a micro business is its size, allowing them to be nimble and agile. A business strategy, products, and customer focus can shift quickly to meet the need of the hour. Where larger organizations have a more command and control, siloed approach to establishing goals and meeting those targets, micro businesses can make decisions at grass root level immediately. This is facilitated by the fact that one of their three people working in customer support may also be in charge of product development so product iterations can be more expedient. 

Micro businesses are also less hierarchical. Yes, there are specific decisions only a select few can make, but given hiring process is so limited and thereby often selective, micro businesses focus on enabling those that work with them to be more autonomous and empowered.

Disadvantages of a micro business

The biggest disadvantage micro businesses face a dearth of funding available for them. We’ve heard ongoing stories of venture funding doubling year over year for certain types of businesses or US business lending to drive banks’ profitability. However, it is night and day when funding micro businesses. The biggest hurdle is that such enterprises are relatively so small that they are usually assessed on the merits of the individual as opposed to classifying them as a separate business entity.

Another major disadvantage micro businesses face access to talent. Very few new college graduates aspire to make it big with a micro business. That is even more pronounced among graduates of more prominent universities. Ask a graduate of Princeton or NYU whether they would like to work for Amazon and Google or John Smith Micro Business. Nearly 100% of the time, the response will be a liking towards a more established high-flying name to establish their professional credentials quickly.

Micro businesses face similar issues in customer acquisition since it’s mostly a one-nine-person show, and most people are wearing many different hats. It is challenging to establish relationships and focus on customer acquisition and upsell growth, i.e., Customer Success, a hallmark of business growth strategy.

Micro businesses are a fast-growing segment of the US economy. People being either laid off or finally choosing to follow their passions are turning to entrepreneurship. They are looking to start their own businesses and often do so in the form of micro businesses. Usually classified as those entities employing fewer than ten team members, micro businesses can be easily clubbed into the small business category. However, it is essential to understand their nuances and identify their specific needs to foster their growth and prosperity.

The US Census Bureau took notice and started to track statistics around startups. More and more individuals look to start their own business after the great resignation. Everyone needs to understand what micro businesses are, their different types, and their pros and cons.

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