Most of the business organizations that exist in the world are actually very small businesses and micro-businesses. Mainly, sole traders with either one or no additional workers.
Nowadays, it is common to make a further distinction for very small businesses known as micro-businesses. Micro-businesses employee very few people and generate low sales revenue compared to other firms in the industry.
Small firms are very important to all economies and to the market in which they operate. Encouraging the establishment and development of micro-business units has many benefits.
Detailed benefits of micro-enterprises
- Job creation. Micro-businesses are a very critical job generator for the economy. In general, the majority of companies in any entrepreneurship economic ecosystem are micro-businesses. Although each one does not employ many staff in total, collectively the small-business sector employs a very large proportion of the working population in most countries. Jobs created by micro-businesses are a particularly important source of new employment, and a frequent source of entrepreneurship.
Example 1: As many as 3.7 million microbusinesses in the U.S. made up approximately 75.3% of all private-sector employers in the country in 2013.
- Added dynamism to the local economy. Micro-businesses are run by creative and passionate entrepreneurs who have tons of ideas for new products – innovative goods and services. With the larger number of products entering the market it creates more variety. So, customers benefit from greater choice.
Example 2: Buckinghamshire Business First has been very successful in supporting microbusinesses and other businesses through the variety of offers. During the 2020/21 year, they have assisted 50,000 businesses, helped create 710 jobs, and helped bring 400 new products to market. Much of this has been focused on microbusinesses.
- Increased competition. With many small firms operating on the market, there will be increased competition for larger businesses. Without this kind of competition, larger firms could continuously exploit consumers charging high prices for low quality products.
Example 3: The cost of air travel in Europe has been reduced in recent years due to the establishment of many small airlines such as Ryanair competing with the large established companies such as Lufthansa or British Airways.
- Supplying specialist products. There are lots of micro-businesses that supply specialist goods (i.e. raw materials, semi-finished goods and components) and services to the largest companies in a country. Because of its small size, these micro-firms are being able to adapt quickly to the changing needs of those larger businesses. Therefore contribute to an increase of the competitiveness of the larger organizations. Micro-enterprises have strong ambitions to break down supply chains and are encouraged to tender for contracts.
Example 4: The car industry is dominated by major car manufacturers such as Toyota, Volkswagen and Ford. All of these large businesses depend on small specialist suppliers of car windows, audio equipment or headlights.
- Building foundation for the future. All of the greatest businesses were small at some point in the past. Although it is very difficult for micro-businesses to compete with large and established rivals, and access funding, the large firms of the future are just starting today.
Example 5: Apple’s founders Steve Jobs and Steve Wozniak worked out of Jobs' garage at his home in Los Altos, California.
Example 6: The Body Shop began in a small rented store in 1976.
It is quite common for governments to support business start-ups through a variety of activities in order to help provide comprehensive business development programmes to the creative industries. Micro-firms are encouraged to become established businesses and expand to create more job opportunities and benefit an economy.
Example 7: When Jeff Bezos started the company Amazon as an online bookseller in 1994, the business was running on money from Bezos’ parents’ life savings.
Example 8: Hewlett-Packard started assembling electrical equipment in Packard’s garage.
- Lower prices for customers. Many small firms are able to enjoy lower average costs due to favorable cost structures than larger ones which are affected by internal diseconomies of scale. This benefit could be passed on to the consumer too who will pay lower prices.
Even though there is no universally agreed definition of small firms, it will be easy to identify them within your own economy. In general, all of the business organizations that employ 10 or less people, generate up to EUR€2,000,000 in sales revenue and have capital employed of less than EUR€2,000,000 are classified as a micro business.
The official definition of micro-enterprises within your own country could be discovered from the trade and industry department.
