Starting a small business on the side can be a great way to diversify your income and learn more about business. However, it’s not for everyone. Before taking the plunge and becoming a Micro Business owner, there are some significant advantages and disadvantages to consider.
Have you given much thought to what a Micro Business actually is? Let’s review some facts that might help you decide if it’s for you or not. After all, starting a business isn’t as easy as it may seem. Visions of lots of freedom, holidays when you want, or taking off early are so tempting, but is it all just a pipe dream?
What is a “Micro Business” Anyway?
The terms Micro Enterprise and Micro Business are used interchangeably. Micro businesses usually operate with 1-9 employees, including the owner. Owners invest a small amount of capital, usually from personal savings, credit cards, home loans, or another type of financing. A micro business can be operated by a single owner with no employees, aka solopreneurs. These small operations often begin and remain as the owner’s side-hustle.
Not every micro business has to be a brick-and-mortar storefront that sells products face to face; it might be an online store or a company that provides services for other companies. Many micro businesses specialize in goods or services created at home for their local areas. Some micro businesses are even small manufacturers.
Micro businesses are usually distinguished from small businesses by their limited scale and revenue. Most micro businesses make less than $100,000 annually. Think of them as mini-versions of full-scale enterprises: they have the same goals and engage in similar activities as larger businesses but are smaller and generally less profitable. They also have some tax variations.
Who are Micro Business Owners?
Statistics show that 5% of the U.S. workforce work at micro businesses with one to four employees, and 12.6% work at companies with five to 10 employees. 16.7% work at companies with 20 to 99 employees, and 14% work for organizations with 100 to 499 employees.
Think of freelancers in any field, gig economy workers, event planners, creatives (artists, writers, composers), consultants, creatives, home healthcare workers, other professional service providers, and people working in the gig economy, like Lift drivers, Amazon store owners, and Vrbo or Vacasa hosts.
A micro business may also carve its own space within an industry by focusing on a specific market sector. For example, a micro business owner is a food and restaurant industry member who sells baked goods from a food truck rather than opening a full-fledged bakery.
Successful types of manufacturing micro businesses are furniture, picture frames, jewelry, promotional products, rubber stamps, herbal products, and custom computers, to name a few.
Image Credit: Canva
Depending on the owner’s intention and opportunity for growth, some micro businesses are early-stage small businesses that may eventually grow into large enterprises, while others will remain micro businesses over the company’s lifespan.
Advantages of a Micro Business
It’s a great way to earn money. Many people are willing to buy services or products from micro business owners. Starting small and grow at your own pace without worrying about pleasing investors and shareholders or meeting bottom-line goals.
You can work for yourself. Being self-employed is a dream of many people, who appreciate being able to make all the decisions that affect their lives.
You can be creative. You have no one telling you what not to do in working for yourself. You also have the freedom to develop new ideas—and if they don’t pan out, no big deal!
Being flexible and changing with changing market and trend environments is more manageable with micro businesses than with an established corporation. Compared to large companies, micro businesses respond quicker with shorter turnaround times for decisions and processes because of the small-scale nature of the business.
Micro business owners may specialize in a particular industry and skill specialization to maximize their markets. By practicing their trades in a micro business, owners can see different perspectives and various opportunities to build their expertise and business.
Micro businesses may experience lower overhead costs since they have smaller salary payouts, fewer operating expenses due to the simplicity of the business, and zero rent expenses for online/remote micro businesses. Many micro business manufacturers start from their homes.
Experiencing the freedom to choose your future is what every entrepreneur wants. Having a micro business, you get just that. Not only do micro business owners enjoy the freedom to choose their career paths, but their employees also have that same interest and intent.
Disadvantages of a Micro Businesses
The Bureau of Labor Statistics stated, as reported by Fundera, approximately 20% of small businesses fail within the first year. 30% of small businesses will fail by the second year. About half will have failed by the end of the fifth year, and by the end of the decade, only 30% of businesses will remain — a 70% failure rate.
Owner management, lack of business acumen, and money problems are the top reasons micro businesses fail. Many failures tie to cash flow problems resulting from a lack of proper bookkeeping and budgeting.
Although more oversight and responsibility might be advantageous for business owners, it’s almost a forced requirement for micro business owners. Dealing with more paperwork and administrative duties can be time-consuming. Compliance requirements are burdensome if trying to hire. With employees affecting the entire company, owners need to be present and responsible leaders and managers.
Risk is a factor in any business regardless of the size, including funding and the possibility of business failure. With only 13.8% of big banks approving small business loans, micro businesses are often denied funding because of their high-risk nature and inability to turn a profit within three years. 26.5 small businesses did not receive any emergency federal loan money during the COVID-19 pandemic.
Lacking access to resources necessary for a business to begin, particularly a lack of staffing for micro business can be a show stopper. Growing a customer base is more difficult in a highly competitive market with micro businesses with fewer employees and resources than larger companies.
Making common mistakes may cause premature failure. Most common mistakes micro business owners make include: using their personal bank account for business expenses, not tracking expenses, failing to adequately budget, ignoring business credit, and making mistakes on business taxes.
As reported by Zippia, the U.S. Census Bureau’s Annual Survey of Entrepreneurs stated that approximately 25% of small businesses must close their doors due to low sales and poor cash flow. An additional 9.8% close their businesses due to their inability to obtain necessary business credit issues.
Image Credit; Canva
A Healthy, Sustainable Business Benefits All of Us
Micro businesses are a gateway for anyone who wants to start a business but lacks either the funds or the drive to do so. They can be created anywhere at any time with minimal effort. However, micro businesses have their drawbacks. It is up to you to determine if it’s right for you and test it out. Bigger isn’t always better for everyone involved with a business. A healthy economy is one where there’s a wide range of business sizes. Micro businesses bring things like solid communities and local marketplaces filled with exciting products!
You could likely find success if you have the drive, knowledge, and creativity to run your own small business. Remember that it will take a good deal of time and effort to get the ball rolling, so set reasonable expectations and proceed with caution.
Marcy Fletchall is the former CEO/Senior Consultant for HRchitects, Ltd., and a former SCORE colleague. She currently operates Kaleidoscope Compass a site that helps users navigate business opportunities.
