How to Start a Micro-Business

A micro-business is a company started with a small initial investment, often only a few hundred dollars, and operated with fewer than five employees.

Micro-businesses now account for 92% of all U.S. businesses, reports the Association for Enterprise Opportunity. For many entrepreneurs, micro-businesses are the springboard to other business opportunities and possible wealth.

Micro vs. small businesses

Micro-businesses and small businesses look a lot alike. In fact, micro-businesses are a type of small business. Both are companies with products and services for sale. Both are profit-focused. The differences start to emerge when it comes to scalability.

Most micro-businesses operate online, often as a part-time endeavor or side hustle, whereas small businesses typically operate within leased space, such as an office or storefront. For that reason, small businesses often require more money to start up.

Micro-businesses cost less than $50,000 to establish (typically, much less). They also have less than $250,000 in revenue and/or assets, whereas small businesses have the capacity to generate multiples of that amount.

And micro-businesses are frequently run by a sole proprietor, although the official cutoff is fewer than five employees. They are often considered lifestyle businesses, or companies started to fund the lifestyle of the founder, rather than being an entity that can grow and be sold or passed down later.

Small business owners often aspire to grow their ventures into larger operations, and they invest in them and allocate resources to improve the odds of that happening.

Despite small business' potential for massive growth, it is micro-businesses that are having a moment.

Why micro-businesses are trending

Micro-businesses have grown in popularity for several reasons, most of them financial. Bankrate reports that 45% of working Americans have a secondary source of income, also known as a “side hustle." Side hustles and micro-businesses are nearly synonymous.

Among the reasons people are starting micro-businesses:

To generate disposable income

Brian Barde of Pittsfield, Mass., is owner and CEO of Kindlewood Camping LLC, which he started during the pandemic. “I work at a Fortune 100 company for my 9 to 5 and a micro-business for my 5 to 9," he says. The side business has already positively impacted his life. “This income will undoubtedly help supplement my salary, reduce our tax burden, and, best of all, dramatically impact our customers and society."

To increase savings and/or investments

Jon El Kordi-Hubbard and his fiancée both have demanding full-time jobs, but they started Long Beach, N.Y.-based Edin Soap Co. “to build additional equity that we can call our own," he says. They do this by running the business on their off-hours, generally early mornings, late nights, and weekends. “We created Edin as a micro-business to complement our lifestyle and raise awareness for a sustainability cause that is near and dear to us—plastic in the bathroom."

They need money to cover living expenses

Channing Norton, founder and sole full-time employee of PC Solutions in Rochester, N.Y., established his IT firm specifically “to help micro-businesses with their IT needs and business goals," he says. It is now his primary source of income. What he appreciates about running his own business is the flexibility. “If I need to take the day off, it's very easy, as my workload is small enough that it can easily be made up the following day without issue."

More adults are starting businesses to replace their salaries. Many want the freedom to be their own boss and decide when and where they work. That need for independence and freedom is the primary driver of most entrepreneurial activity.

Steps to start

The steps involved in starting a micro-business mirror the process for starting any business, although the main difference is the investment made to get it up and running.

• Decide on a product or service: What need have you identified in the market that you can provide? Or what skill do you have that you can use to serve customers in need?
• Choose a name: Naming is important because it drives your online presence. Many micro-businesses are online only. Finding a domain name that matches your business name is essential.
• File official paperwork: Depending on where you live, your new business may require a license, permit, or other filings. You may also set up an official legal entity, like an LLC, for your company. Check with your county courthouse to learn what you need to submit to be legit.
• Set up a bank account: Once you've filed to establish your new business—whether that's your doing business as (DBA) filing, or your LLC, S corp, or C corp paperwork—take those documents to a bank and set up a business account where you can deposit your business revenue and keep it separate from your personal income.
• Start marketing: Once you're officially in business, start spreading the word. Set up social media accounts, create a simple business website, and email friends and prospects to let them know what you can do for them.

One of the biggest advantages of a micro-business is you can stick with it as long as it makes sense, and shut it down if you lose interest. In the meantime, it can provide valuable supplementary income.