Mighty Micro Businesses and How to Start One
You’ve heard of micro loans, but just how much do you know about micro businesses? That’s right, small is getting smaller and a new generation of micro businesses is emerging to adapt and take on the challenges of entrepreneurship in the 21st century.
What is a micro business?
Asking what exactly a micro business is will likely prompt a range of answers. For example, the Small Business Administration defines a micro business as a business that employs 1-9 people and is more a subset of traditional small businesses than its own group with a particular set of needs and challenges. On the other hand, one of the leaders in micro business empowerment, the California Association for Micro Enterprise Opportunity (CAMEO), defines a micro business as “a firm with five or fewer employees, started for $50,000 or less in initial capital and that may not have access to traditional commercial loans.” This definition of micro business is fairly large and comprises almost 85 percent of the 28 million businesses traditionally considered as small business.
Either way, micro businesses are more than just the most common size business out there; they are also major contributors to employment in the U.S., responsible for nearly 25 percent of all the jobs in America. According to the Association for Enterprise Opportunity, micro businesses
- make about $2.4 trillion
- contribute 17 percent of the GDP
- employ more than 31 million people
That’s a pretty big impact for the little guy—or gal!
Micro business or small business?
So, according to the numbers, most businesses are in fact micro businesses, and these entrepreneurs are contributing to the economy in a big way. But, let’s go beyond the numbers to understand some of the key differences between a traditional small business and a micro business.
According to CAMEO, micro businesses have five or fewer employees and get started for less than $50,000. To put that in perspective, let’s compare a small business and a micro business in the same industry. Let’s say we have a restaurateur who wants to open a brick and mortar restaurant in Chelsea, NYC, that specializes in farm-to-table fare. As soon as you see brick and mortar, restaurant, and Chelsea, you know our restaurateur is going to need a lot more than $50,000 to get this business going. And he’ll likely need a lot more that five employees to staff the front and back of the house.
On the flip side, let’s say we have restaurateur who also loves farm-to-table but wants to do it out of a food truck in Portland, Oregon. This entrepreneur can likely lease the food truck, hire one employee to support her, get her city permits, source her food, and come in with initial start-up cost of less than $50,000. In essence, the former brick and mortar operator is going to be a small business while the latter, our food truck, is going to be a micro business.
How Liddabit did it
This is the approach Liz Gutman and Jen King, of Brooklyn’s Liddabit Sweets, took when they started. Liz says, “We’ve grown organically from the very beginning. While it can be challenging to bootstrap, it’s a great way to mitigate initial risk and really prove your concept [and] get it off the ground before putting serious resources into it.”
Starting as a micro business in 2009, selling their candy at the Brooklyn Flea, made it easier to expand later. In 2014, they opened a shop next to their production kitchen in Industry City that serves not only sweets but also baked goods and lunch specials. But the expansion that really matters is the 48 New York City locations where you can now buy their sweet treats.
Beyond logistics and start-up costs, the other big differentiator when it comes to small versus micro businesses is money. Access to capital and other financial needs really set the micro businesses apart from the small businesses.
Getting a loan for a small business is hard enough and getting a loan for smaller amounts from traditional banks is, ironically, even harder. For the more traditional small businesses like our brick and mortar restaurant above, who are often looking at initial capital cost of $100,000 and up, there are financing options available with big banks and credit unions to fund the dream.
However, getting a small business loan for under $50,000 tends to be a bit less straightforward. Fortunately for micro businesses, more and more alternative small business funding tools are emerging to address the needs of the many micro entrepreneurs. Organizations such as Kiva and CAMEO have made it their mission to empower micro businesses through access to capital. And, if you’re interested in finding micro loans in your area, there’s even a handy map of loan providers from the Opportunity Finance Network.
For Liddabit, startup costs were really low, in part because they were “lucky to have friends and mentors like Rhonda Kave of Roni-Sue’s Chocolates, who let [them] piggyback on her wholesale orders, buy ingredients off of her and use kitchen space gratis during off hours.” Gutman says that with all that help, “at the very start we really needed maybe $2,000 for ingredients, cooking utensils, kitchen space, and market fees,” though she notes that number is “a very rough ballpark.” Having a community of small businesses or at least a mentor even before you’re up and running can make all the difference.
Is a micro business right for you?
Now the big question, is a micro business right for you? The answer to that rests on the start-up costs of your business model. Say, for example, you’ve dreamed of owning a farm-to-table restaurant. The best approach may be to forego opening a brick and mortar right off the bat and focus on growing a customer base around a pop-up shop or even catering where you do your cooking out of a shared industrial kitchen.
The start-up cost of a food truck or catering is much lower than if you go straight for a traditional brick and mortar. A micro business offers the added benefit of reducing your financial risk in case the business doesn’t prove to be successful, whereas, had you taken on the cost of opening a restaurant and hiring a staff, you’d have a substantial financial investment on your hands with a high risk. This difference applies to just about any business model you’d care to explore. The micro business model can be a great way to test the waters for your business idea without taking on the risk of going big.
Keep in mind, though, that while you risk less money in a micro business, there are inevitably “lumpy sales,” when sales go up and down significantly, moving between extremes. According to one micro business owner writing in the New York Times‘ “You’re the Boss” blog on small businesses, this is a particular danger when micro business owners try to be all things to all customers. While it’s tempting to say yes to something outside your usual business or expertise when you’re hard up for cash, in the long run, “trying to be all things to all people will cost you money.” That work will take longer and you can’t charge as much for your expertise, because you don’t have any.
It’s something Carrie Swing, who owns Carried Away, a social media strategy consultancy, found when she was getting started in business.
“If I didn’t have a client for what I thought I was gonna do, but somebody said, ‘Well, I know you started your business and you said that you wanted to do marketing—but can you do my Quickbooks?’ I would do that because I was starting out and because I could and I needed the money. But as I got more and more experience, I discouraged approaches for the things that I didn’t want to do and became more clear about what I did want to do.”
She mentions a client, a traditional window-covering seamstress, who does that one thing very well. When things get tough, Carries says, “I know that she could probably take in other sewing work but she will double down on her marketing in that case and do things for the theater instead of taking on a not-as-related task.”
There have been ups and downs, she acknowledges, but things got a little easier once she decided to focus on social media, a topic about which she could talk expertly and for which clients were asking.
If you do plump for a micro business, either as your ultimate business model or as a place to start growing a bigger business, make sure you have a strategy in place for dealing with lumpy sales or the possibility of your being unable to work for a protracted period of time.
Whatever you decide, remember that there are numerous resources for potential and current business owners when it comes to taking on the next challenge. Be sure to reach out to a non-profit group such as the SBA, SCORE, or your fellow business owners on Townsquared for the best advice on starting or growing your micro business.