You want to become an entrepreneur and start a business. However, you may not have the funds or manpower to do so. Thankfully, you can start a micro business. These businesses, despite their humble beginnings and operations, play a pivotal role in the economy and are the bedrock of local communities. But what actually is a micro business, and how can you start one?
In this article, we will define a micro business, go over how to start one and provide examples of micro businesses. See the table of contents below to better navigate the article.
Table of Contents
What is a micro business?
Approximately 92% of businesses in the US are micro businesses. A micro business, commonly referred to as a micro-enterprise, is a business that is operated by less than 10 people. There is no definitive definition, as it varies by industry and organization, but they are often characterized by their minimal size, limited revenue, and small workforce.
Micro businesses are found throughout the country and contribute to employment. Additionally, they foster innovation and community development. Those looking to take this path of entrepreneurship must cultivate qualities of resilience, productivity, and adaptability. But is this path for you? Let’s look at a list of pros and cons to better help you understand that.
Pros
- Very little capital needed to start
- Low overhead costs
- Lower risk compared to other business models
- As an entrepreneur, you have full control of the business and are your own boss
- Flexibility (can pivot quickly to market changes and trends)
- Can align with your passion and skills
Cons
- May struggle to secure funding from lenders
- Limited resources
- Potential small budget and time constraints
- May struggle to compete with larger companies
- Chance to end in failure
What is the difference between a micro business and a small business?
A micro business may sound similar to a small business, but they are instead a subset of small businesses. While the two terms are very similar, they have key differences between them, the chief of them being size and scale. As with a micro business, the definition of a small business varies. However, it is usually agreed that a small business consists of less than 500 employees, compared to a micro business’s 10-employee limit.
Micro businesses operate on a smaller scale than small businesses. Many banks will group these two business concepts into different categories and may even consider micro businesses less bankable than small businesses. This stigma is the reason why securing funding may be challenging for micro business owners. Fortunately, the Small Business Administration (SBA) offers microloans to these businesses.
How to start a micro business
Before you start this process, you should determine if this business model is for you. Do you have a firm business idea? Are you content with the associated risks? Are you willing to put in the time and effort necessary for success? You must ask yourself questions such as these to gauge whether this business model is the right path.
If you believe that you are ready, then let’s look at how to start a micro business.
1. Create a business plan and strategy
“By failing to prepare, you’re preparing to fail.” Benjamin Franklin says it best: preparation is key. Before you start a business, it is crucial to come up with both a business plan and strategy. A business plan outlines the path your business will take to generate profit and experience growth. This is what investors and collaborators will be interested in, and what will help you secure funding and stayed focused on your goals. Your business plan should consist of:
- Executive summary/description
- Market analysis
- Organization/management
- Products/services offered
- Financials
- Marketing and sales strategy
Of course, your business plan should be unique to your business. The main purpose of it is to establish what your company is, what it does, what value it offers, and how it will profit and grow.
Before you continue, you should devise a strategy that you will follow throughout your embryo and later stages. This should not be overlooked and should be included in your business plan. A business’s strategy should detail the company’s goals and how they will accomplish them.
2. Assess your financials and secure funding
A key step for starting a business is to assess your financials and secure funding. This means determining how will you attain the necessary capital to start and operate your micro business. Ensuring that your business is financially viable will prevent financial hiccups in the future.
One focus of this financial assessment should be to analyze your startup’s expenses and income streams. This will give you a general idea of how much your business is making, and how much it is spending. One way to evaluate your expenses and income streams is to look at the company’s financial statements. You should look at metrics such as burn rate (how quickly your business is spending money) and cash flow.
There are numerous ways that your micro business can secure funds. We have already mentioned microloans from the SBA, but other methods will get the necessary funding. For example, you could get a generous investment from an angel investor, a business grant from the government or an organization, or even use your personal savings.
Before you secure funds, you should evaluate your startup’s financial needs and ask questions about its requirements and financial viability. How much money do you need to get the business off the ground? In what way will you utilize the funding? How will you repay any debts or loans?
3. Perform market analysis
Market analysis is an assessment of the competitive space your business will be entering as well as your target market. This can help your business spot trends and patterns within the industry and tailor your product to your target market. Additionally, it can optimize your marketing efforts and see what others have done right and what they have done wrong. Mainly, it’s about identifying opportunities that your business can use to differentiate itself from the competition.
There are many ways you can go about conducting market analysis. This includes a SWOT analysis, competitor analysis, market segmentation, and more. These methods will aid you in understanding the competitive landscape you are entering, as well as the best way to approach it.
4. Develop a marketing strategy
Once you have performed market analysis, you should use your findings to develop a marketing strategy. This will be used to attract customers and gain traction for your startup. A marketing strategy is essential if you want to keep up with emerging trends and gain a competitive edge. This strategy should act as a guide to your business’s marketing efforts and outline the goals you wish to accomplish.
A sensible marketing strategy should include clear objectives, a reasonable budget, as well as the methodology by which you will target and attract customers. It should outline why you’re in the business and what it is you wish to achieve.
Marketing’s success can be found in companies around the world. For example, in 2011, Coca-Cola started a marketing campaign that has become one of the most iconic and successful marketing efforts in recent memory. This marketing campaign is known as “Share A Coke.” It contributed greatly to the soda giant, boosting sales by 11% (among other things).
5. Legal considerations
When starting a business, most overlook legal considerations and fail to comply with them. This costs time and resources and leads to legal problems in the future such as fines, penalties, and the potential closing of your business.. The best way to prevent this is to ensure that your micro business complies with legal concerns as early as possible.
The first legal consideration that your startup should be concerned with is choosing your legal business structure. Your legal business structure will mainly affect the amount your business pays in taxes and personal liability. There are many options to choose from, each with its advantages and disadvantages. These options include:
- Limited Liability Company (LLC)
- Sole proprietorship
- Partnership
- S Corporation
- Corporation
- Nonprofit
But it doesn’t stop there. It is best to get proper insurance coverage before beginning operations to protect your business from financial losses and unexpected events. Entrepreneurs can also file patents and protect their intellectual property. Additionally, business owners should ensure that they are complying with labor laws to prevent legal issues.
6. Develop and test your product
It’s time to turn an idea in your head into a tangible thing: your product. Before releasing it to the market, most businesses will follow a process that involves strategizing, designing, testing, and developing a product. This process is known as product development.
There are two main types of product development: product validation and product iteration. Both of these consist of ways to improve upon a product and prepare it to be market-ready. These methods involve releasing a minimum viable product (MVP) to the market that acts as an experiment used to gather data and feedback. This data can be used to improve various features of a product and make it more enticing to customers.
Of course, you can use your own methodology that works for you. Your strategy should be one that is user-centric and aims to provide a desirable product that acts as a solution to customers’ needs.
Examples of micro businesses
You may not realize it, but micro businesses are all around you. They are found in almost all communities and play a vital role in the local economy. Let’s look at some examples of micro businesses to give you inspiration.
Freelance services
Freelancers are individuals that are self-employed and work on a per-job basis, typically specializing in a certain niche. They work as independent contractors, advertising themselves to find new clients.
You can find a freelancer for almost any task. Common freelancing services include:
- Writing
- Digital marketing
- Consulting
- Editing
- Web developer
Local coffee shop
A prime example of a micro business is your local coffee shop. These small establishments typically only employ a few people, and have relatively small operations. Despite this, most local coffee shops embody a place of warmth, one that you will feel welcomed in and be treated with excellent customer service. These establishments go to show that bigger is not always better, and that you can create something great with limited resources.
Landscaping companies
Similar to freelancers, landscapers typically operate as independent contractors. However, they often employ a small team of workers to perform the necessary work. This work can range from lawn care to groundskeeping, and usually involves manual labor. Oftentimes, landscaping companies will also have a representative that is in charge of marketing and customer service.
Carpenters
Carpenters specialize in completing building projects for their customers. These projects include woodworking, installation, design, and repair. Carpenters may be independent contractors or work with a small team of fellow construction professionals.
Food truck vendors
Food truck vendors typically just employ one or two people. They work within a limited space and take orders, prepare the food, and handle transactions.
Despite their small size and operations, these micro businesses are able to provide vital services to the community, and are able to make a profit in the process.
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