By Jane Ollis, MD of Rift Accounting
Micro businesses and entrepreneurship are getting some great press lately and it’s fully deserved.
There are now over five million firms in the UK with between 0-9 employees, a huge rise of 1.5 million since the turn of the century. The growth in micro businesses has helped drive the economic recovery and put entrepreneurs at the heart of British business.
A new report from the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) has labelled the current business environment as the ‘second age of small’ (the first age being the cottage industries of pre-industrial Britain).
Yet some economists have raised concerns about whether this is an age to be welcomed, citing the relative inefficiency and small outputs of micro businesses when compared to larger organisations.
To me these economists are missing the bigger picture – a picture cold stats simply don’t capture. The benefits in this micro boom are not just economic, but also social.
Comparing apples and pears
Many of the criticisms levelled at the rise in micro businesses make the mistake of comparing large firms directly with small firms, stating that they lack the efficiency, output and turnover that their big cousins do. But this harsh, analytic viewpoint overlooks critical positives that can’t always be measured in numbers or data.
Firstly, the reason for being for many micro businesses are not the same as larger firms. According to the RSA, a third of micro businesses (excluding sole traders) consider themselves a social enterprise. These are organisations that want to make more of a social impact than a financial one. Who want to improve their local community and help out others.
These enterprises provide both employment for those working in them and opportunities for those using them. They often play critical roles in the local community and supply services national or local authorities cannot or simply will not.
They may not bring in the revenue that excites bean counters in ivory towers, but their value needs to be measured by other means.
Small can be beautiful
Many surveys have found that those working in very small firms are often more content, less stressed and more loyal than those in bigger firms.
Job satisfaction is something almost impossible to measure statistically or to produce an ROI or economic figure for. But people who enjoy their work tend to be healthier than those who feel trapped in their work. They also show high levels of loyalty, helping reduce staff turnover, and work more productively than unhappy employees.
It’s hard to accurately produce a happiness index, but if you could I’ve no doubt that small firms would be incredibly well represented.
Stepping out of the rat race
A significant portion of micro businesses are set up by people who don’t want to make huge profits. Some may want to monetise a hobby, others may simply be looking to top up a retirement fund or just keep themselves busy.
On a balance sheet, these micro business may tick signs indicating inefficiency and stagnation, but in reality they play a vital and positive roles in many people’s lives. They add variety and spice to our economy whilst generating income and employment. That’s to be welcomed, not frowned upon.
A different type of innovation
Another criticism from certain economists relating to small firms is they do not innovate as much as larger firms do. As a pure statistic this may be true, after all, small firms don’t have the resources to pump into R&D larger ones may do.
However, small firms contribute in their own way. Firstly, their small size allows them to be a lot more agile and flexible than bigger firms. Meaning they can experiment and succeed with new ideas and trends a lot quicker than larger companies. Something the UK’s booming tech sector has proven time and time again.
Secondly, some academics argue that smaller firms ‘contribute equally’ to to the innovativeness of society, but that they simply operate on a different scale to bigger firms so innovation is often not as clear. Van Praag and Versloot have theorised that amongst entrepreneurs ‘innovations seem to be produced more efficiently’, leading to more innovation per employee than in larger firms.
Helping to trim the tape
The rise of micro businesses is in some ways a testament to the collective efforts of successive governments to cut red tape and make opening a business easier. This has generated a welcome cycle.
As more people look to become entrepreneurs, politicians are put under more pressure to cut more tape and make things more efficient. Thus helping to reduce a lot of the bureaucracy of business and helping trade and custom flow.
Think big about thinking small
Both big and small businesses have a role to play in the economy. Whilst at first glance it may seem that micro businesses don’t always produce the attractive numbers and figures their larger counterparts do, their value can be measured in many other ways.
Small firms can be an extraordinary force for good in a healthy society and their growth should be encouraged. I strongly believe the dawn of a ‘new age of small’ is great for Great Britain.
Long may the reign last.