Micro Businesses: Advantages, Challenges, Popular Types

a small storefront

When something is microscopic, it’s so small you can’t see it with the naked eye. The same, however, can’t be said of micro businesses. They’re all around us in plain sight in almost every city and town in the US, mainly because it doesn’t take much money or a lot of workers to get one off the ground. And what they lack in size, they make up for in numbers. As of 2020, there were almost six million micro businesses in the US, or roughly 70% of all the businesses in the country, according to the US Census Bureau.

Here’s a rundown on what you need to know about micro businesses.

What is a micro business?

Definitions of micro businesses vary, but the US Small Business Administration defines them as businesses with nine or fewer employees. Freelancers, small stores, and those with side hustles often operate as micro businesses, especially when starting out. Because micro businesses operate with limited resources and are so small, they face unique opportunities and challenges developing services and products, attracting potential customers, and penetrating target markets.

Advantages of micro businesses

Many micro businesses need very little working capital, making them accessible to the young and those with low incomes and little capital. Unlike bigger businesses, they operate with little internal structure, making it easy to tweak their operations or change direction. For example, a small coffee shop can easily introduce new latte flavors while a large coffee chain would undergo a much longer process to test the appeal to consumers before implementing such a change. Micro business owners often have the flexibility to set their own schedules and work at their preferred pace.

Unique challenges of micro businesses

Although a micro business may have plenty of flexibility, those without a history of financial success often struggle to secure financing from traditional lenders. Raising capital can be particularly difficult for women and minority small business owners. Many micro business owners turn to family and friends for loans and investments. Some organizations and government agencies try to bridge the gap with grants and investment opportunities for women and minority-owned businesses.

Micro business owners may also struggle to keep track of important business tasks because of their small budgets and time constraints. Because of this, micro businesses may find it helpful to automate workflow in order to improve productivity and minimize labor needs. Shopify has tools that help micro businesses with labor constraints, like Shopify Inbox, a customer service tool, and Shopify POS, which assists with in-person retail sales.

Micro business vs. small business

Although the term “small business” often is used interchangeably with the term “micro business,” micro businesses are, in fact, a subset of small businesses. A small business is usually defined as a company with fewer than 500 employees. A micro business is usually defined as a business with nine employees or less. That means all micro businesses are small businesses, but all small businesses are not micro businesses.

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Types of micro businesses

You probably encounter micro businesses all the time, even if you don’t realize it. Some common examples of micro businesses include:

  • Freelance services. Freelancers receive pay for a specific job or assignment, and they usually work for several employers or organizations. Some businesses owned by a single person adopt a sole proprietorship business structure, with no legal separation between the owner and the business, while others choose to incorporate into single-member LLCs. In a sole proprietorship, the owner has personal liability for the business’s debts and obligations.
  • Ecommerce businesses. Online retail stores on platforms such as Shopify often operate with just a few people with minimal overhead. 
  • Independently owned small retailers. Chances are that many of the restaurants, coffee shops, and stores in your neighborhood qualify as micro businesses.
  • Private practices. Many highly skilled professionals such as doctors, lawyers, dentists and accountants operate private practices that qualify as micro businesses.

Micro business FAQ

How does the size of a micro business impact its operations and management?

Micro businesses have more flexibility than larger businesses and can more easily change how they structure operations and management. However, they can face difficulty raising capital, hiring, and bringing products and services to market.

What kind of support is available for micro businesses?

Micro businesses may qualify for small business loans from the US Small Business Administration. Other small business financing options include other types of small business loans, equity investments, and grant opportunities.

How can technology help a micro business grow and succeed?

Computers and software programs can help provide customer service, bookkeeping, and inventory management that may be cheaper and more convenient than hiring workers.

Can a micro business be profitable?

Well-managed micro businesses selling products or services that meet customer demand, while also carefully controlling expenses, can earn a profit. Almost every major corporation that’s a household name began as a micro business, though those that follow this path are far and few between.

How can individuals and communities support micro businesses and encourage their growth and success?

Micro businesses that play an integral role in the local community tend to draw more support from residents, many of whom are potential customers. A micro business can also collaborate with other local businesses to advertise each other’s services.