I have discussed ‘micro-enterprises’ in some of my previous blog posts and a few people have asked me what I mean by the term ‘micro-enterprise’. I have decided to create this post in order to answer some of the questions I have been asked. I will also follow this with a short discussion regarding the role micro-enterprises can play in creating social value for the environment and their communities.
What is a micro-enterprise?
The criteria used to determine a micro-enterprise differs slightly between countries. In the US a micro-business is typically considered to be any business with five employees or less, in Australia micro-enterprises are defined as having up to 20 employees and in the UK the criteria differs once again.
As I am writing this article in the UK I will use the European criteria for defining a micro-business which incorporates three criteria. To be classed as a micro-enterprise a business must have:
- fewer than ten employees
- a balance sheet total below €2 million
- turnover below €2 million
Are micro-enterprises important to the global economy?
Micro-enterprises add vast value to the global economy by creating employment opportunities, enhancing income and strengthening purchasing power for consumers through lower costs and increasing choice. In the UK, small to medium-sized enterprises (SMEs) make up 99% of the private sector and in turn 95% of SMEs consist of businesses who have fewer than ten employees.
In other words, approximately 94% of all businesses in the UK are micro-enterprises. With around 4.5 million micro-enterprises operating the UK their collective contribution to the UK economy in vastly significant. These percentages are fairly similar in the majority of developed countries in the world which further emphasises their relative importance to the global economy.
In developing countries the percentage is often higher due to the lack of opportunity for expansion and growth. Micro-enterprises in such countries are created out of a necessity to survive rather than from a desire to work independently. When you consider the vast number of micro-enterprises that exist across the globe their potential collective economic power should not be overlooked.
What’s the difference between an SME and a micro-enterprise?
The term SME is used to refer to businesses which are considered small to medium in size. As with micro-enterprises the criteria for definition varies between countries but sticking with the European criteria a SME is any business employing less than 250 people. Within the band of SMEs there are three sub-categories: Micro-enterprises (as previously discussed) who have up to 10 employees; small businesses who have up to 50 employees and medium businesses who have up to 250 employees.
Therefore, to answer this question the difference is that micro-enterprises form a large part of the lower end of the SME category of businesses. It is also common sense to see that these businesses need to be considered distinctly different to medium and small sized businesses. A micro-business with four employees will be structured and managed in a completely different way to a medium sized business with over 200 employees. This is common sense and specific attention needs to be paid to the micro-enterprises to ensure they are treated and communicated with in an appropriate manner.
What’s the difference between a micro-enterprise and a micro-business?
Ultimately there is no difference between the two terms and they can be used interchangeably. I have heard some variations in definition in the past but they are trivial at best. For example, micro-enterprises are associated with micro-credits and micro-loans and micro-businesses are more associated with non reliance on micro-finance. In addition, I have heard the two terms differentiated by their lifespan in that relatively new start-ups should be referred to as micro-enterprises but well established businesses should be referred to as micro-businesses. As I say, these differences are not significant or accurate so instead I would suggest you pick one or the other and use it consistently to avoid confusion.
How can micro-enterprises create social value for their communities?
I have already mentioned that micro-enterprises make up around 94% of the entire private business profile in the UK. There is a great deal of emphasis on large corporations to actively pursue and report on their social responsibility. I am not for one second suggesting that this behaviour is not important but it often neglects the other 95-99% of businesses in the UK.
If every micro-enterprise were to incorporate social responsibility into their business operations the collective impact would be extremely significant. Many micro-enterprises are already creating value for their communities and local environments but sadly many are not. Often they do not have the awareness and understanding to pursue social objectives. When coupled with a perceived lack of resources and time engagement is low.
More work needs to be undertaken to educate micro-enterprises in social responsibility practices and opportunities as well as encouraging them to take small steps in the right direction. Most micro-enterprises are closely associated with their local communities and are in a great position to make a real difference. They are often family run and lead by people who want to make a positive contribute, they simply need the guidance and support that is required to enable them to take action.
I hope this has clarified a few of the main points of confusion around micro-enterprises however please feel free to post a comment if you would like to explore this topic in more detail.