A micro business, also referred to as a microenterprise, is a term generally used to describe a business operating with fewer than 10 people.
Micro businesses are favored since they require very little startup capital and have low operating costs. A micro business is often started as a hobby or side hustle that generates additional income for the owner or solopreneur.
Despite their size, microbusinesses account for a significant portion of the U.S. economy and employment.
In this article, we explore the difference between a micro business and a small business, the opportunities and challenges of owning a micro business, plus tips to get started.
Micro vs. small businesses
Microbusinesses differ from small businesses in size and scope. Microbusinesses are smaller and tend to focus on a specific niche, while small businesses may offer a range of products and services. The size of a business can affect the eligibility for loans and other types of financing.
There is no one-size-fits-all definition of a small business. The U.S. Small Business Administration (SBA) can define small businesses by revenue (ranging from $1 million to $40 million+) and by number of employees (from 100 to 1,500+). Meanwhile, the Office of Advocacy of the SBA states that microbusiness employers are firms with 1-9 employees.
The SBA’s sizing parameters are defined by North American Industry Classification System (NAICS) codes. For example, a baked goods business (NAICS code 445291) has small business status if it has annual revenues of $16 million or less, whereas a cracker and cookie manufacturer (NAICS code 311821) must have less than 1,250 employees.
Micro business examples
Micro businesses represent a range of professions from accountants to web designers. They may operate as a home-based business or have a storefront or commercial office.
The following can all be considered micro businesses:
- Freelancers
- Independent contractors
- Startup businesses
- Ecommerce businesses
- Street vendors
- Small, local, independent retailers
Micropreneur vs. entrepreneur
Micropreneurs and entrepreneurs are similar in that they enjoy flexible schedules, have unlimited earning potential, and set their own terms.
One possible distinction is that micropreneurs are not necessarily focused on rapid growth and expansion. They may focus instead on meeting client needs and delivering a service without a huge investment in operations, employees, or property. Entrepreneurs tend to look towards establishing a larger footprint and typically secure financing and hire people to help them grow.
That’s not to say that micropreneurs are not entrepreneurial. They simply choose to pursue their dream by owning and operating a smaller scale enterprise rather than taking on the financial and business risks associated with expansive growth.
What are some of the challenges of running a micro business?
Micro business owners tend to wear many hats and do so with limited resources. They must navigate marketing, IT, billing and collections, customer service, taxes, and business regulations.
Let’s break down some of the main challenges of running a micro business:
- Getting noticed: Standing out from the crowd is a challenge for any micro business owner. With limited marketing budget and resources, reaching their target audience and differentiating themselves from the competition isn’t easy.
- Financial stability: Finding and maintaining a steady income stream is a common challenge. Clients come and go, seasons change, and maintaining cash flow requires foresight, planning, and sometimes just plain luck.
- Regulations and legal requirements: Starting any business, micro or not, involves staying on top of regulations. From business licenses to tax laws, understanding which ones apply to the business and staying compliant can be overwhelming, especially as laws and regulations are constantly changing.
- Scalability: Many micro businesses don’t have the infrastructure, funds, or resources to scale up to meet demand.
- Technology: New tools and software can make business easier but knowing when to invest in new innovations and how to implement them can be a challenge.
How to start a micro business
If you’re looking to start a micro business, there are steps you can take to ensure your venture is a success. Consider the following:
- Have a business plan: A business plan can help focus your vision and goals, guide your strategy, identify potential risks (and how you plan to overcome them). It can also define any investment or funding needed to help you get started.
- Select a business structure: Even as a micropreneur, you have many options. You can choose a sole proprietorship, limited liability company (LLC), corporation, or partnership. The entity you choose will impact daily operations, ownership, taxes, and risks you take with your personal assets.
- Choose a business name: When naming your business, pick a name that’s easy to remember, descriptive of your business, and aligns with your brand.
- Register your business: Depending on your business structure, name, and location, you may need to register your business with state and local governments.
- Get federal and state tax IDs: Again, depending on how you structure and operate your business you may need to register for a federal (also known as an Employer Identification Number or EIN) and state tax ID.
- Open a business bank account and credit card. If you have significant business expenses, are seeking financing, or want to reduce personal liability, it’s important to separate your personal and business financing.
- Obtain insurance, licenses, and permits. Even home-based businesses may be subject to licensing requirements.
- Arrange for admin. Make sure your business accounting and payroll (if you have employees) needs are met.
- Market your business. Learn some SEO and social media basics. Don’t neglect offline or traditional marketing strategies as well.
