An interesting phenomenon is occurring in the UK: micro-businesses are on the rise. The shift towards small business has led expert institutions such as the RSA to dub this “the second age of small”. When was the first age of small, you ask? That would be in pre-industrial Britain, when cottage industries were the norm.
What does the micro-business landscape look like?
There are now 5.5 million firms in the UK. The vast majority of these – around 99% – are small-to-medium sized enterprises (SMEs) and most of those are micro-businesses (with 1-9 employees), at 5.25 million. This is up from 5.15m for the same time last year, and from 3.5 million in 2000. This is a pretty big increase, especially when compared to the rises and falls for other types of businesses.
There are questions as to how much employment micro-businesses provide. In fact, 1 in 3 people in the UK are employed by a micro-business. However, this includes those companies which only have 1 employee – the owner. 76% of businesses in the UK have no employees except for the owner.
How much do micro-businesses add to the economy compared to big business? According to the a government report, micro-businesses contribute 20% of private sector turnover. That might seem kind of small, but consider that the majority of that turnover is being created by sole-traders! As for SMEs more generally, during the recession (2008-2013), firms with fewer than 50 employees were responsible for 85% of new jobs created.
So, what does all this mean for our economy?
Some critics of micro-businesses have argued that this increasing trend was a sign of a flagging economy and that it’s usually a marker of “poor countries”. In general, small businesses and self-employment are seen as inefficient and a drain on the economy. However, recent studies by the RSA suggest that the prominence of micro-businesses is neither a sign of success nor lack thereof.
A more important indicator is innovation. While larger companies usually spend a much higher proportion of their revenue on research and development, innovation in micro-businesses looks quite different. It actually tends to be more efficient and makes use of “open innovation” trends, and these small businesses are better placed to engage in “intangible” innovation – the stuff that is more to do with concepts or relationships than products themselves. Though fewer micro-businesses are investing in innovation, those that do, do it better. They outperform the larger firms in finding out the value of new products and services. They are also better at capitalising on improvements through iterations.
Another significant indicator is employment. As already stated, 1/3 of employees are working in micro-businesses. These small businesses generally offer less in terms of money, perks and formal training, compared to larger enterprises. And yet, micro-business employees are more likely to be satisfied in their jobs, enjoying greater job security, more supportive management and more satisfaction through having greater personal responsibility.
What is the reason behind the growth of micro-businesses?
Government approval: successive governments have worked to reduce red tape and regulation to make running small businesses easier, reduce business taxes and provide incentives for recruitment. In fact, last month, business ministers announced a new consultation on the role of Small Business Commissioner, a role which is intended to give small firm owners a voice in government.
Technology: it’s easier than ever to set up your own business with just a laptop and an internet connection. Various technologies are becoming cheaper and more easily accessible, from communications to manufacturing to transport and distribution.
The personal touch: it’s common knowledge that we’ve moved from a product-based to a service-based economy. This makes it easier for small businesses to deliver, and tends towards longer and more loyal relationships between businesses and consumers.
Opinions are changing: being self-employed is increasingly seen as a solid career choice, and 80% of people think entrepreneurs are respected in their societies. Also, it’s not just unqualified workers who choose to start their own businesses – more people with higher educational achievements are deciding to work for themselves.
It seems that both research institutions and the government are slowly discovering the value brought to our economy by small businesses and responding to that discovery. There are calls from organisations such as the RSA for the government to help out small businesses by looking into market consolidation and worrying levels of power at the top, among oligopolies. What we need is to find that ideal balance between the different types of businesses that allows everyone to flourish, from sole-traders to multinational corporations.
Tell us your thoughts. Do you own or work for a micro-business? Have you noticed some of these changes over the past few years? Do you think a second “age of small” is good for our economy?Let us know!