Micro Businesses: What Are They and How Do You Start One?

Small businesses versus micro businesses: What’s the difference, you may ask. While all micro businesses are small businesses, making up 99.9% of all U.S. organizations, not all small businesses are micro businesses. However, these compact operations are instrumental in driving the economy, delivering specialized services to niche markets, and opening doors for budding entrepreneurs.

What are micro businesses?

Micro businesses are found nationwide, ranging from freelance professionals to mom-and-pop shops. Defined by the U.S. Small Business Administration as any company with nine or fewer employees, these small-scale operations typically provide specialized services or cater to specific market segments. Micro businesses generate less than $250,000 in annual revenue and require little startup capital to establish, making them accessible for those just entering the industry.

The advantages of having a micro business

Operating within specific niches, micro businesses offer unique services or products, serving as a significant differentiator for those aiming to establish a market presence. Plus, their low overhead costs result in reduced expenses for things like office space, staffing, and business operations.

The small scale of micro businesses also allows for easier management without needing external intervention. For example, if a business needs to adjust its operations due to underperformance, there's no need for a lengthy approval process through an internal hierarchy; businesses can make adjustments promptly. This flexibility can be freeing for employees, who can typically set their own schedules and working conditions.

[Read more: Why Hot Startups Like Pura Vida and Cure Hydration Are Getting Big Results From Micro-Influencers]

The challenges

Despite needing less capital than larger enterprises, micro businesses often struggle to secure funding due to their limited history or brand recognition, with entrepreneurs frequently resorting to risky self-financing. Funding problems can impact consumers too, as smaller entities often struggle to set competitive prices and adapt to fluctuating demand.

Another hurdle for micro businesses is attracting customers due to brand recognition issues. While carving out a niche can appeal to consumers, micro businesses often operate with limited resources, potentially leaving them with too few staff members or needing more technological expertise to attract new customers as effectively as their larger counterparts.

Types of micro businesses

Micro businesses are prevalent across the country and vary widely, ranging from e-commerce storefronts and startups to independent contractors, retailers, and street vendors. These businesses can function from a commercial location, a retail storefront, or be home-based.

Qualifying as a micro business largely depends on staff size, encompassing many private practices including doctors' offices, financial professionals, and law firms. Local small businesses also qualify, as do retail businesses operating on online platforms with low overhead and few employees.

How to start a micro business

While starting a micro business is a much smaller undertaking than establishing a larger corporation, it still requires ample planning to be successful. Here are some tips to get you started.

Choose an industry

Begin developing your business idea by considering the areas you excel in. If you possess specialized skills or have a profitable hobby, it can steer you toward an industry where you're likely to thrive. Research the industry to confirm the need for your business, as well as a potential customer base, and ensure it suits your lifestyle.

Develop a business plan

Draft a business plan that encompasses details ranging from your business model to financial projections to your intended hiring strategies. Include information about your target market and define your marketing plan, along with goals you’d like to achieve and a corresponding timeline.

[Read more: Writing a Business Plan? Here’s How to Do It, Step by Step]

Register your business

For most businesses, registering with local and state authorities is essential in order to obtain a state tax ID and Employer Identification Number (EIN). An EIN is necessary for various operations, including opening business bank accounts, filing taxes, or processing employee payroll.

Research and test your product

Conduct studies to test your product or service in your target market and determine areas of improvement. Gather feedback, whether it's from a small sampling of people during a soft launch or a wide range encompassing family and friends, focus groups, and other local vendors and businesses, to refine your product to be market-ready.

Secure financing

A financial plan is essential to getting your business off the ground. Secure capital through microloans and credit from banks, or explore funding options from external lenders or investors who believe in and support your business idea.

Attract customers

Micro businesses need a comprehensive marketing strategy to attract customers. Investigate your target market and competitors to guarantee that your business effectively communicates its value proposition. Employ marketing techniques, such as social media promotion and paid advertisements, and develop a website that reflects your business's core values to reach your audience.

[Read more: A New Selling Strategy? How to Create Virtual Micro-Experiences]

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.