Micro-Business vs. Startup: What’s the Difference?

As of March 2023, the United States has over 33 million small businesses, according to the U.S. Small Business Administration (SBA) Office of Advocacy. Of those small businesses, over 81% have no employees and are run by a single, self-employed individual.

With so many new businesses launching in the U.S., people may not always know how to classify these ventures. The terms “micro-business” and “startup” are often used interchangeably to refer to these new entities — and, in some cases, both can apply to the same company. However, startups and micro-businesses have distinct definitions and characteristics, as well as unique advantages and disadvantages.

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

What are startups?

As the name suggests, a startup is any company in its earliest stages of operations. Startups are typically founded by one or more entrepreneurs, and they focus on one product or service that its founder(s) wants to bring to market. At this stage, a startup may or may not have a fully developed business model, and it often needs funding to move to the next phase of business.

Founders may launch startups with a variety of end goals in mind. Examples of such startups include the following:

• Scalable startups seek out support from investors to eventually expand to a national, or even global, market. Google, Facebook, and Uber are examples of companies that began as scalable startups.
• Small business or lifestyle startups are self-funded and are based in local communities. These may include hair salons, grocery stores, or dance studios.
• Buyable startups are created specifically to be sold to larger companies. It’s common for enterprises like Amazon and Uber to purchase these smaller startups and help grow them over time.

The funding process for startups often begins with investments from the founders, friends, and family, also known as bootstrapping. Founders may also seek out seed funding from individual angel investors followed by additional funding from venture capital firms. A startup may also opt to become a public company, opening it up to external investment.

[Read more: What Every New Startup Can Do to Protect Their Intellectual Property]

Advantages of startups

Startups offer entrepreneurs a significant degree of freedom and flexibility. They can craft a business and team culture from the ground up as well as work when and where they want. And since startups are not yet well established, they can more easily adapt to market changes and streamline their processes.

Disadvantages of startups

As with anything new, the process of launching a startup comes with a certain level of stress and risk. Especially at the outset, founders often work with limited resources, which can cause significant strain. Startups that don’t acquire sufficient capital or successfully find their niche may struggle to find their footing in the market and ultimately fail.

What are micro-businesses?

Micro-businesses are companies with nine or fewer employees that generate under $250,000 in revenue annually. They are considered a subset of small businesses, defined as companies with 500 or fewer employees. While many startups begin as micro-businesses, they don’t always stay that way.

Types of micro-businesses include:

• Freelancers/independent contractors in which a business pays an individual per assignment and may work for multiple employers.
• Independently owned small retailers, including local restaurants and stores, street vendors, and small e-commerce stores.
• Private practices in which skilled professionals (such as lawyers or doctors) provide services.

Oftentimes, micro-businesses are eligible for small business financing, including small business loans, grants, and equity investments. Owners of micro-businesses can also apply for an SBA microloan of up to $50,000.

Advantages of micro-businesses

Since micro-businesses typically require lower investment and overhead, launching a micro-business is often more feasible than starting a larger enterprise. Owners of micro-businesses can also enjoy greater flexibility, both in terms of working arrangements and in adapting to changes in the market, along with strong community ties and customer loyalty.

Disadvantages of micro-businesses

The greatest challenge for micro-businesses is grappling with limited resources. Owners of micro-businesses must determine where to best allocate those resources, and they often wear many hats to keep things operating smoothly. Micro-businesses may also struggle to gain brand recognition or scale their operations, which can end in failure.

[Read more: Taking a Page from DTC Disruptor Pura Vida, Vera Bradley Seeks Community Connections With ‘Micro-Influencers’]

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.