Should I Start a Micro Business or SME?

People often group these organisations as ‘small businesses’, but this broad definition doesn’t capture the key differences within the sector. To provide a clearer definition of a small business in Australia, we will break them down into two categories: ‘micro business’ and ‘SME’. Discover how an MBA can help you successfully navigate business, regardless of the size of your company.

The importance of micro businesses and SMEs

Micro businesses and SMEs are essential to the lives of all Australians. Most of us will interact with a small business almost every day — as a customer, employee or indirectly benefiting from their impact on the economy.

Alex Solo, co-founder of Sprintlaw, explains that “Small businesses service a wide diversity of needs and wants from consumers.” “It gives us a choice, and it allows us to have more tailored types of goods and services rather than relying on a handful of large providers,” says Alex.

Small businesses also offer a personalised experience based on our interests and location.

“Australia is geographically spread out and has so many different communities,” says Alex. “It makes sense that you end up with a lot of small businesses servicing different areas and tailoring things to local geographic needs.”

What is a micro business?

A micro business, or micro enterprise, can be defined based on factors such as employee size, revenue or sales.

While each company will have a different micro business definition, the Australian Bureau of Statistics (ABS) describes it as “a business employing one to four people”.

Essentially, a micro business operates on a small scale, has few employees and usually a small amount of revenue.

Micro business examples include:

• Plumbers
• Mechanics
• Consultants

What is an SME?

SME stands for 'small and medium enterprise'. The ABS defines small businesses as those with less than 20 workers. The number of employees in a medium business, on the other hand, ranges from 20 to 199. An SME is almost always larger than a micro business in employee size and revenue.

SME examples include:

• Hair salons
• Medical practices
• Cafes and restaurants

How micro businesses and SMEs improve employment

“Small businesses employ an enormous amount of the workforce,” says Alex.

The ABS backs this sentiment, reporting that 2,589,595 Australian small businesses and 68,214 medium businesses were in operation as of June 2024. 97.2 per cent of Australian businesses are small businesses.

The abundance of SMEs also provides opportunities for employees.

Alex explains, “Many people make a lifestyle decision to work for smaller providers where they are more involved and get more purpose and meaning out of their jobs”.

Micro business vs. SME – what’s the difference?

Micro businesses and SMEs hold some key differences. It’s important to analyse these and weigh the pros and cons when deciding what business to start.

1. Level of owner involvement

“In a micro business, the owner is quite involved in the day-to-day operations,” says Alex. “They might not only run the business but be working as the subject matter specialist.”

For example, a cafe owner that employs three staff (micro business) may be making coffee and serving customers while also managing the logistics. The owner of a medium-sized chain of cafes (SME) is less likely to be on the floor and more likely to focus solely on business operations. This is one of the key differences between a managing director vs. CEO in a small business.

2. Client base

A micro business is more likely to have a small client base. These clients are usually loyal and have a close relationship with the business.

An SME will likely have a larger client base that is less loyal than a micro business.

3. Finances

Micro businesses tend to earn and spend less money and have lower overhead costs.

An SME will bring in higher revenue and will also spend more. They may also have higher fixed costs, such as rent payments for an office or retail space.

Similarities between a micro business and an SME

While all micro businesses and SMEs will look different, here’s what these company structures are likely to have in common.

A targeted offering

Both micro businesses and SMEs tend to have a specific customer base. This could be a local cafe servicing a specific geographic region or an online gaming store targeting a particular interest. For this reason, businesses need to know their customers inside out and have strong marketing strategies to reach them.

The option to grow

Typically, both micro businesses and SMEs share the flexibility of choosing their rate of growth. Not all owners will want to grow their businesses. Some may be happy operating on a smaller scale, while others may wish to become medium to large businesses.

The pros and cons of a micro business vs SME

Here are some of the pros of a micro business:

• Greater flexibility
• Fewer wages to pay
• Can survive shocks more easily
• Owners can practice their craft
• Less overhead costs
• More personal relationships with clients leading to brand loyalty
• Easier to maintain a strong culture with fewer employees

And here are some of the cons:

• May reach a limit to how many customers they can service
• Employees need to wear many hats
• Being under-resourced can lead to burnout, dissatisfaction and careless mistakes
• Difficult to invest in medium and long-term solutions
• Less opportunity for wage growth

Here are some of the pros of an SME:

• Better resourced
• Can handle scale better
• More time and money to invest in the brand
• Easier to secure medium and long-term revenue streams
• Higher profit
• Greater chance for high remuneration
• Potential to build stability
• Potential to sell the business in future

And here are the cons:

• As the organisation grows, the culture may become difficult to manage
• Need to invest in robust systems and procedures
• More prone to shocks if things go wrong
• Higher financial stakes
• Greater reputational risk

Decide which option is right for you

Alex says that if anyone is unsure about whether to start a micro business or an SME, they need to ask themselves one question: are they interested in working in the business or running the business?

“If you love the subject matter of what you do, the micro business approach is worth considering. You’re more likely to get to practice your expertise. If you have ambitions to grow a larger organisation, you might want to consider a small to medium business.”

Do you need a postgraduate business degree to start a business?

Technically, anyone can start a business regardless of their educational background. Some of the most successful entrepreneurs entered their careers without formal qualifications, including Bill Gates, Steve Jobs and Richard Branson.

However, starting a business without a deep knowledge of finance, marketing and strategy can be risky. Studying a postgraduate degree, especially in entrepreneurship, provides future business owners with the skills, qualifications and connections they need to launch their small business. By learning from industry experts, they will be equipped with tools to make their vision a reality.

The following are some postgraduate courses in entrepreneurship in Australia.

Launch your business with a postgraduate degree

Micro businesses and SMEs are essential to the livelihoods of all Australians. By starting a small business, you will contribute to one of the most important drivers behind the economy’s success and the population’s wellbeing. Pursuing a postgraduate business degree can help you develop the expertise needed to transform your business idea into reality. Discover various postgraduate courses in entrepreneuship available in Australia today.