The Micro Disadvantage

Some time ago we talked about the advantage of being a #microbusiness.  It would be an allusion if I were to say micros have no disadvantages, so I’ll be upfront.  On average, 38% of micro-businesses fail in the first 5 years, 57% in the first 10 years.  Knowing the disadvantages that micros face will embolden some, scare off others, and educate both camps.  This blog shall be a good filter for those in the consideration phase.

Limited Feedback

Often an entrepreneur will start a business on their own because of an idea or their skills.  For example, a person thinks of an invention that simply doesn’t exist, at least to their knowledge; or a plumber leaves the company she works for and starts out on her own.  Their disadvantage is the limited amount of feedback they get from others.

They might have a spouse or parents that are encouraging, or the might not even have that much.  They might just have that can-do attitude and nobody that asks the hard questions.  This is well documented in a series of books by Michael E. Gerber called E-Myth.  The E stands for entrepreneur. 

Just because you fancy yourself an entrepreneur, and may even be one, doesn’t mean you can start and run a successful business.  You need to find multiple sources of feedback, be open to critique, and read few books that challenge yourself and your ideas.

Below is a list to get you started. I promise it will easier, cheaper, and more informative than a 2, or even 4 year, business degree.

The EMyth Revisited by Michael E. Gerber
Great by Choice by Jim Collins
Business Made Simple by Donald Miller
Built to Sell by John Warrilow
The Automatic Customer by John Warrilow
Start With Why by Simon Sinek
Traction by Gino Wickman

Cash Flow

More often than not, an entrepreneur is starting their business on their own dime, at their own risk.  If they don’t have savings, then they will risk their house, or ask family that may or may not have been involved in the feedback, or they will get a loan.  Their disadvantage is they are putting something at risk, and that may only be reputation and self-esteem, but they are putting it out there to face the onslaught.

What you shouldn’t risk is your wellbeing and that of your family.  You should have enough cash, investments, savings, etc. to still provide for yourself and family at a minimum level for two years when you start a new venture.  That doesn’t mean make no sacrifices, you’ll need to sacrifice, but plan to not take money out of the company for 24 months.

There is way more math to consider, but that will be in another blog.

No Scale

A big reason cashflow is a challenge for a micro-business is that a lot of costs don’t scale for micros.  For example, taxes are the same whether your net profit is $10 or $500,000.  Business registration is the same cost whether you are a team of 2 or 2000.  Unlimited internet is the same cost for 1 as it is for 100.  It is a disadvantage to be micro when fixed costs are fixed.

One way to reduce your fixed costs is to join associations such as the Chamber of Commerce and CIFB.  Your Chamber of Commerce can offer you a group health benefit that you can’t get at as a micro-business.  Other groups, such as the Canadian Federation of Independent Business, can offer deals on QuickBooks and merchant services.

Service Provider Discrimination

Perhaps the worst disadvantage that micros experience is finding a service provider that isn’t trying to force-feed them a solution that is too much.  Most business servicer providers (lawyers, accountants, marketing agencies, business consultants, I.T. service providers) lean towards bigger and bigger customer, for obvious financial reasons.  When they encounter a new potential customer, they offer the solution that fits their median customer, which is usually isn’t designed for teams of 10 or less.  It amounts to discrimination against the little guy.

To resolve this discrimination, obtain a basic knowledge of basic business services (I.T., accounting, legal, marketing, and business acumen).  Do as much as you can on your own, balancing your valuable time against what a professional can do better and faster.  When you do need to hire a professional provider of business services ask for two things:  what results do they promise, and do they have special pricing or promotions or focus for your size of team.

Although there are apparent and blatant disadvantages for micro-businesses, they are obviously not insurmountable.  As noted earlier, 75% of businesses in Canada are teams of 10 or fewer people, and while many fail, many do not and are the backbone of our economy.

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