The Rise Of Micro Businesses

A ‘micro-business’ is typically described as one with between one and nine employees. Over the last 15 years, the number of micro-businesses in the UK has risen by about 50 per cent – from 3.5 million in 2000 to 5 million today. This enormous increase becomes even more remarkable when compared to the limited increase or fall in the number of all other sizes of business over the same time frame.

Today, one in three people in the UK are employed by a micro-business – an astonishingly high number and one which has led the RSA – and other expert institutions – to dub this trend ‘the second age of small’. (If you’re wondering, the first age of small occurred in pre-industrial Britain, when tiny companies made up the vast majority of enterprise!)

But is this increase a good or bad thing? One of the most significant critics of the micro-business is economist Simon Kuznets – who argued at the start of this trend that high rates of self-employment and small businesses tend to point towards a flagging economy and are characteristic of ‘poor countries’. That may well have been true at the time. However, the RSA’s recent study (which you can read in full here), argues that in fact, in today’s climate, the presence of micro-businesses is neither an indicator of a successful or unsuccessful economy. Rather, in order to understand the value of micro-businesses to a country’s financial well-being, you must take a closer look at a few key performance indicators.

For example, innovation is a great marker by which a business’s value can be measured. The more time and money a company can dedicate to R&D, the higher the chance of it thriving and adding lots of value to the national economy. At first glace, it looks like micro-businesses and innovation aren’t well matched: only 13% of small businesses in the UK dedicate a significant amount of internal resource to research and development – a much smaller number than for medium and larger businesses.

However, that’s just at first glance: it’s important to realise that innovation at micro-businesses looks very different to innovation elsewhere. For one thing, it’s much more efficient and makes better use of ‘open innovation’ trends (where organisations share resources to insights to fuel innovation). This efficiency continues into the testing phases of R&D: micro-businesses are more likely to outperform large firms when it comes time to discovering the value of new products and services, and iterating improvements. So while fewer micro-businesses are doing it, those that are are doing it better.

Another set of key performance indicators that better capture the value of micro-business is employment. It can’t be denied that micro businesses usually offer less money than their larger counterparts, as well as fewer perks – including in house training opportunities. However, despite this, a micro-business employee is likely to be happier and more fulfilled in their role, enjoying benefits such as greater job security, a more supportive management system, and a greater sense of personal responsibility.

The RSA’s report makes fascinating reading, and has identified five trends behind the UK’s ‘second age of small’. These include:

People’s opinions are changing: According to the Global Entrepreneurship Monitor, 80% of people believe that entrepreneurs are respected within their socieites. Being self-employed is widely seen as a good career choice, and more people with a greater number of higher education qualificiations are choosing to work for themselves – including over-65s and young parents.

The government is on board: One of the main obstacles to self-employment is red tape. Successive governments have attempted to reduce this as much as possible to encourage small business growth. For example, the government recently promised to remove 3,000 regulations, keep the rate of corporation tax down, and introduce some attractive tax incentives for recruitment.

Technology works: In today’s world, a laptop and an internet connection are the incredibly accessible building blocks anyone needs to start their own small business. Technology is becoming cheaper and easier to operate across the board – from communication, to manufacture, to transport and distribution.

People love personal: In the UK, we’ve moved from a product-based economy to a service-based one. This is much easier for small businesses to deliver – and, ideally, creates lots of long and mutually rewarding relationships between businesses and their customers.

Corporations are cannibalising: The last two decades have been tough for many medium to large corporations. Competition is up, with many leaner, more agile rivals biting away at market share. In response to this, some corporations have sought to cut costs by outsourcing work to smaller contractors – therefore essentially cannibalising their own potential.

Overall, the economic climate continues to be supportive of micro-businesses, and we expect to see a continued rise in the number of people from all kinds of industry opting to take smaller, more secure and more rewarding career paths.

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