The United States is a hub of entrepreneurial activity, with new businesses growing daily. A significant portion of these new ventures is classified as micro-businesses, which are defined as enterprises with fewer than ten employees.
Despite their small size, micro-businesses significantly impact the US economy. In fact, they make up a substantial portion of private-sector employers, constituting almost 75% of the total. Additionally, micro-businesses provide employment to over 10% of the private sector workforce, making them an important contributor to job creation and economic growth.
Starting a micro business can be a great way to become your own boss, pursue your passion, and contribute to the local economy. In this piece, we delve deeper into the world of micro-businesses, exploring their definition and differences from small businesses and weighing the benefits and drawbacks of launching a microenterprise.
What’s a Micro Business?
In simple terms, it’s a small business that typically operates on a local level and has a limited number of employees. The term microenterprise is often used interchangeably with micro business, and both terms refer to a similar concept. Micro businesses can take on many different forms, from solo operations like freelance consultants to small retail shops and online businesses.
While micro businesses and small businesses share some similarities, there are also some important differences. For example, small businesses typically have a larger number of employees, a broader customer base, and more resources at their disposal. Additionally, small businesses may be more likely to have access to investment capital, while micro businesses may rely more on personal savings or small business loans.
How Does it Work?
A microenterprise is similar to a small business in terms of functioning. In terms of formation, they are usually established as a sole proprietorship, partnership, or limited liability company (LLC), though some may choose to incorporate. These enterprises are beholden to taxes that vary based on their industry and legal structure, including income tax, payroll tax, sales tax, and property tax.
Obtaining all necessary permits and licenses is also crucial for their operation. The nature and specifics of a microenterprise can vary greatly, just like any other business, as the owner or owners hold the power to shape its direction. Most micro enterprises are run by a single entrepreneur who takes on all aspects of the business, such as sales, marketing, finance, operations, accounting, research, and development, earning them the title of “solopreneur.”
Micro Businesses Pros and Cons
Pros
The advantages of starting a micro business are numerous and can be significant.
Firstly, flexibility is a significant advantage of a micro business. Even small changes may require multiple levels of approval and strategy in a larger business. However, in a micro business, decisions can be made quickly, and there is more freedom to change direction if necessary.
Another advantage of a micro business is its simple operation. With fewer employees, there are fewer departments to manage and processes to maintain, leading to more efficient workflow and communication throughout the business. Additionally, the smaller size of a micro business allows for skill specialization. Micro businesses can become experts in their field by focusing on a smaller number of services or product offerings.
One additional benefit of beginning a micro business is experiencing lower initial financial outlays. The cost of running a micro business can be substantially lower than running a larger corporation because there are fewer employees to pay salaries for, there are smaller operating expenses, and there’s the possibility of running the enterprise from a remote location or from home.
Cons
However, there are also some disadvantages to consider when starting a micro business.
One disadvantage is the increased responsibility placed on each employee. With fewer employees, each individual must take on more responsibility and ownership for their day-to-day tasks, so hiring top-notch employees who can be trusted to handle these tasks is essential.
Another disadvantage is the level of risk involved in starting a new business. Although a micro business can be formed as a side hustle, a significant risk is still involved. Micro businesses may be denied funding due to their inability to turn a profit within the first three years.
Limited resources can also be a challenge for micro businesses. Smaller companies tend to have fewer financial or promotional resources for marketing and sales, making it more difficult to attract customers. This can be a challenge for a successful business, as a loyal customer base is essential for growth.
Last but not least, having a limited amount of resources can make it tough to recruit quality workers. This might be a significant obstacle to overcome when it comes to putting together a reliable and capable staff for your micro business.
Types of Micro Businesses
Microbusinesses can be found in various industries and can take many forms. Some common types of microbusinesses include:
Home-based micro businesses
These businesses are run from the comfort of one’s own home and are popular due to their low overhead costs and flexible working conditions. However, maintaining a clear division between work and personal life and creating a professional image may present challenges for home-based entrepreneurs. Some examples of home-based businesses are freelance writing, consulting, or graphic design.
Retail micro businesses
Retail microbusinesses offer a wide range of products directly to customers through a physical storefront or an online platform. These businesses cater to a diverse customer base, from small corner stores to specialty boutiques.
Service-oriented micro businesses
These businesses provide personalized services, such as hair styling, pet grooming, or computer repair, directly to customers. With low overhead costs and the potential for a flexible work environment, service businesses offer unique opportunities for entrepreneurs.
Online micro businesses
With a vast customer base and low overhead costs, online micro businesses have the potential for significant growth. These businesses operate entirely or partially through the internet, ranging from e-commerce sites to virtual services, such as online tutoring.
Food and beverage micro businesses
From food trucks to catering services, food, and beverage microbusinesses bring sustenance and enjoyment to customers. Despite the challenges presented by perishable products and tight margins, these businesses can also be incredibly rewarding, cultivating a dedicated customer base.
Craft or artisan micro businesses
Craft or artisan businesses are all about creativity and individuality. These businesses produce handmade products, such as jewelry, pottery, or artisanal food products, appealing to customers in search of unique, one-of-a-kind items. Whether facing fierce competition or building a niche market, these businesses are a testament to the spirit of entrepreneurship.
How to Start a Micro Business?
Starting a microbusiness can be a rewarding and challenging process, but here are the general steps you can follow:
Identify your business idea – Determine what type of business you would like to start based on your interests, skills, and market demand. Consider the potential profitability and sustainability of your business idea.
Conduct market research – Research your target market, competition, and industry trends to ensure there is demand for your product or service, which will also help you understand your target customer and what they are looking for in your business.
Develop a business plan – Write a comprehensive business plan that outlines your business idea, market research, financial projections, and marketing strategy. A business plan will help you organize your thoughts and focus your efforts on building a successful business.
Obtain funding – Determine how you will finance your business. This may include using your own savings, securing a loan from a financial institution, or seeking out investors.
Register your business – Choose a business name and register it with the appropriate government agencies. You will also need to obtain any necessary licenses and permits to operate your business legally.
Set up your business infrastructure – Establish your business location, purchase necessary equipment and supplies, and create a functional and efficient work environment.
Launch your business – Start promoting your business and reaching out to potential customers. Launch your business with a marketing strategy that reaches your target market and generates interest in your product or service.
Monitor and adjust your business – Regularly monitor your business’s financial performance and make adjustments as needed to ensure continued growth and success. Seek advice from industry experts, business mentors, and other successful entrepreneurs to help guide your efforts.
These steps will give you a general idea of what it takes to start a micro business. However, be aware that each business is different and might require extra steps or alterations to these processes based on your personal needs.
Conclusion
Microbusinesses play a significant role in the United States economy as they make up a large portion of private-sector employers and provide employment to a significant number of workers. Microbusinesses are defined as small enterprises with fewer than ten employees and are usually established as sole proprietorships, partnerships, or LLCs.
While starting a micro business has its advantages, such as increased flexibility and lower overhead costs, it also has its challenges, including increased responsibility for employees and limited resources for marketing and recruitment.
These small ventures come in various forms, including home-based, retail, and service-oriented businesses. Microbusinesses offer an excellent opportunity for entrepreneurs to turn their passions into thriving businesses while contributing to the local economy.
