Small business entrepreneurship: I like small businesses – they represent the most fundamental business needs of customers. If we look at the history of small businesses, they’ve all arisen as a way to serve an inherent customer need. This is significantly different from a startup where the business plan generally focuses on expansion and growth. A small business, by nature, keeps this small, and esoteric and focuses on the immediate pain it can solve in the market.
Thoughts about scale, expansion, and globalization are the outcomes of the startup culture where the dream is around a hockey curve growth and worldwide adoption. Expansion is almost an inherent goal of a startup. Even when we do business planning for a startup, we think about how easy it is to expand. This is mainly because startups are funded with VC money or private equity where the main goal is return on investment. It is a high-risk high-return investment where the only option is to grow and reward these risks. As we can see small businesses and startups are fundamentally different in their intent. With this background, we return to the main questions about small business entrepreneurship.
Small business entrepreneurship
A small business has various parameters that define its size and scope. Sometimes, we break it down based on the market capture – other times it is about the revenue, turnover, number of employees etc. At times, this definition gets a bit blurry because we can see small companies making larger revenue share owing to their lean operations. Traditionally, separating companies by their revenue size is a reasonable approach because it gives us a benchmark to mark these companies.
Small business entrepreneurship is defined as a small-scale business with fewer employees, market capture and size. A small business generally has less than employees, <$7.5Mn revenue. Common examples of small businesses are – cash-and-carry stores, restaurants, service providers etc. As you can see, most of them cater to specific needs in the market and are isolated to the region for a specific need. These small businesses cater to specific target segments such as geography, customer base, age profile etc. In essence, they are not built to scale or expand as per demand.
Other notable features of small business entrepreneurship are:
- They are either sole founders, partnerships or proprietors
- Usually self-funded or through loans, family and friends’ investment
- Vision is focused on a specific clientele, geography etc
- Passion projects with founders’ investment in the technical delivery
Characteristics of small business
Beyond the definition, we can start exploring other characteristics that help us identify a small business.
Ownership: Most startups are either owned by an individual or partnerships. They might be family-owned or partnerships between friends that have a common goal. Naturally these small businesses have a complete say in the strategic direction and growth of the company. The structure of this ownership is usually loose compared to a startup or corporate structure where this is more defined.
Funding: Most small businesses are self-funded or through debt financing. It is rare for small businesses to have high-risk venture capitalists or private equity people investing. Since it is done either through debt or family/friends funds – the risk is personal and is shared by the owners. They don’t have the support as a result of which they are risk averse and tread with caution.
Pressure to grow: Growth in small companies is organic and avoids pressures of a startup where growth = existence. In a small business, we can afford to grow at a pace that suits us best. The beauty of such businesses is that they can afford to be organic and grow as per the demand and desire of a founder.
The table below shows the distinction between the small businesses and various sizes and distinctions of businesses
| Type of business | Number of people |
|---|---|
| Minute/micro | 1-6 |
| Small | <250 |
| Medium | <500 |
| Large | <1000 |
| Enterprise | >1000 |
What are the types of small business entrepreneurship?
A small business can be any type you decide to register it as. The most important thing while setting up a business is to define its type and structure. For instance, a startup can benefit from Ltd type since share splits are more straightforward. For a small business, you could choose any of the following types. Make sure that you research what type of business you want to do. Following that you can create a structure that benefits you the most.
There are different types of small business entrepreneurship. The most common types of these small businesses are:
- Limited liability company (LLC): To protect the founders from business debts, liabilities
- Sole proprietorship: Perhaps the easiest form of setup – you have the flexibility to run it and adapt as per demand in the market. This is the most common type of small business entrepreneurship given its ease of setup and higher control.
- General partnership: Another common type of small business – usually between 2-3 individuals that share responsibilities, ownerships etc depending on the ownership split that they agree
- Cooperative: This is owned by many members, almost similar to a group-owned company – where each person has the right to vote – this represents a democratic type of small business
- Non-profit: Operates for a specific social cause, the purpose is to make a difference as opposed to making a profit.
On a related note, you can find the types of startups that form a similar distinction.
Advantages of Small Business
Small businesses are simple and easy in terms of their structure and day-to-day operations. It is a great way to have more control on your business and ensure that you can develop it based on your needs. The most common advantages of a small business entrepreneurship are:
- Control and Ownership: You will have a greater sense of control over the strategic direction of a business. In a startup, however, these decisions are restricted by a board, investors, co-founders etc. In small businesses, you’ll have a greater sense of control and authority
- Flexibility: You can decide the rules or boundaries of your business. It can be anything you want as long as it is legal. For instance, if you run a cafe, you will have flexibility on its work hours, type of service, cuisine, etc – it can be as flexible or strict as you’d desire
- Keeping it small: You can keep it as small as you desire. You’re not forced to expand or grow for the sake of returning more for the investment – in a startup, you’ll be forced to take on this direction
In essence, you’re employed by yourself and can decide however you want to lead it.
Disadvantages of Small Business
A small business has its own disadvantages, the primary one being that you’re all alone with your business. The other challenges around funding, expansion, etc are the most common limiting factors that can decide the survival of a business.
- Limited resources, funds, contacts: Small business is a solo journey – a startup has its founders, investors, coaches and mentors to help you grow. A small business can be a lonely battle.
- Dependent on the founder: A small business is not built for scale – it is restricted by the founder’s availability. If the founder is not available or needs to go on a holiday – then the business is stifled.
- Can’t expand easily: Your sources of funds are usually organic sales, personal savings or loans. This restricts the ability to be bold and grow without fear.
- Support system: A startup has a wider support system such as accelerators, incubators and coaches. It is much harder to find this in a small business setup.
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