Micro-Business and Small Business: Is There a Difference?

Small business versus micro-business

While large-scale companies will always dominate the business playing field and account for the lion’s share, it cannot be denied that the number of start-ups, small and micro businesses is steadily increasing. In fact, nearly half of the giant names, brands and companies that came about in the last decade or so began as nothing more than a one-man or two-man company such as Facebook and Twitter.

For the past decade, micro-businesses have been identified as one of the most common kinds of employer firms, accounting for about 75.3% of private sector employers in 2013 (about 3.7 million companies), according to the United States Small Business Administration (SBA). These micro-businesses also took 85% share of the finance, insurance and real estate industry in 2011. While the number of employment share of micro-businesses has declined since the late 70s in the US, they are responsible for creating over 26 million jobs. Small businesses, on the other hand, account for 64% of the employment share of the past two decades.

And yet, very few seem to know what distinguishes a micro-business from the other similar term, small business. In fact, many tend to use both terms interchangeably. Is there a difference at all? Read on to find out.

• Size matters. Despite both types appearing to be considerably smaller than medium and large-scale companies, size remains a key distinguishing factor between the two. Micro-businesses have a lean size of 1–9 employees (the “micro” in the name should be an easy give-away). On the other hand, there seems to be some conflicting definitions on how big (or small) a small business should be. Conventional literature defines it as having 10 or more employees, and can go as high as 500 even, while other sources like the European Union categorizes small businesses as those with less than 50 employees.
• Ownership structure plays a key role. Micro-businesses and small businesses are considered as limited liability companies, a structure that combines partnership and sole proprietorship. In many ways, however, small businesses have more partnerships, tend to employ non-family members and have more formalized management. Micro-businesses, on the other hand, are more family-owned (or family-operated and managed, with the employees mostly immediate family or clan members) and therefore with less formalized management and leadership. The influence of the owner or company founder of a micro-business also weighs heavily in management and company decisions.
• Size determines survival. According to the New Zealand Small Business Assistance Center, about 25% of micro-businesses or zero employee firms are still operational after 10 years. This is two times lower than the number of small businesses that survive within the same time period (about 50% continue to be operational), suggesting that the bigger the company is, the higher the chances of it thriving and surviving in the face of competition, economic inflation and changing customer demands, among others.

Differences aside, experts note that small and micro-businesses appear to be the future of the business world. The interest is high as more and more people shift from being employed to self-employed, regular workers to freelancers.