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What is a very small business?

Introduction

 

When you come across the term “very small business,” your local mom-and-pop shop is probably the first example that comes to mind. In reality, very small businesses come in many shapes, sizes, and formats. They also make up the majority of all U.S. businesses, according to a 2021 study conducted by the United States Census Bureau. Bigger may seem better, but at the end of the day, it’s the very few that make up the very many. 

 

If small business is big business, then very small business means very big business. In fact, some of today’s biggest organizations started off smaller than small. Microsoft once operated out of an Albuquerque motel, while Meta (formerly Facebook) was famously conceived in a dorm room. Both projects came from humble origins, in a bedroom or home office, then grew in time to become larger-than-life, Fortune 500 tech giants. 

What is a very small business? 

The U.S. Small Business Administration (SBA) uses certain thresholds around size and revenue to determine whether a business counts as a small business—and if they’re eligible for financial assistance or contract work. While the SBA doesn’t make the distinction between small businesses and very small businesses, a very small business (VSB) can generally be defined as an organization that employs 10 or fewer employees across all its locations, though these criteria may vary depending on the region and industry.

Types of VSBs

Here are some common terms often associated with VSBs:
 

  • Sole proprietorship. A sole proprietorship refers to an unincorporated business run by a single owner. Self-employed individuals, including freelancers, contractors, consultants, and gig workers, are generally considered sole proprietors. Because they are largely unregulated, sole proprietorships are easy and convenient to form, alter, and disband.
  • Joint venture. A joint venture refers to a legally binding partnership between two or more sole proprietors who share their resources, skills, and customers with each other to launch a co-owned VSB. Joint ventures are often formed so that partners share the financial risk—and the reward—that comes with operating a business.   
  • Startups. A startup is a technology business with a promising new product or service that may still be in development. They are typically lean, bootstrapped, and in the early stages of growth. If a startup is pre-revenue, then they typically rely on crowdfunding or venture capital to finance its operations. 
  • Entrepreneur. An entrepreneur refers to an individual who specializes in building new businesses around new products. They are responsible for driving growth, managing operations, and finding funding for the business. Entrepreneurs may work alone, as a part of a joint venture, or as the founder of a startup. Regardless of the arrangement, when a project performs well, they stand to reap the most gains.

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What are some of the challenges facing VSBs?

Launching a business is an exciting milestone that comes with its own set of hurdles to overcome, but VSBs face even more challenges due to size, budget, and resource constraints. Some of the biggest ones include:

 

  • Finding funding. Lack of funds is one of the biggest reasons why small businesses fail within the first few years. Many VSBs are pre-revenue to start, so it’s necessary to secure funding to cover operational costs as well as payroll. This may come in the form of personal savings, loans, crowdsourcing, or venture capital. 
  • Hiring the right people. VSBs aim for growth, but it’s important to know when to hire the right roles at the right stage of development. A startup might focus on hiring product experts in the early stages, then add a marketing team during the next phase of growth.
  • Using the right tools. There’s no shortage of small business software to choose from, but finding one that fits your size, budget, and needs can be a challenge. VSBs should look for a trusted solution that offers just the right amount of productivity features at an affordable price.
  • Customer acquisition. Promoting a business is essential to acquiring new customers, but it can be hard when time, money, and resources are stretched thin. With a limited budget to work with, VSBs will need to be creative and strategic with their marketing plays.
  • Burnout. Running your own business can be financially and emotionally rewarding, but the volume of work, high risk, and long hours often turn into a great source of stress, leading to burnout.  
  • Integrating your systems. Most organizations have systems for tracking inventory, payments, accounting, and scheduling, but oftentimes these systems exist in siloes. For VSBs, it’s important to connect these disparate systems so that the siloes don’t continue to grow.

What are some of the advantages of VSBs?

VSBs have the unique advantage of being efficient, nimble, and intimate, which gives them an edge against bigger competitors. Here are some of the biggest advantages of VSBs: 
  • Flexibility. Due to their small size and lower overhead, VSBs are innately more flexible than their larger competitors. This allows them to respond quickly to time-sensitive challenges, make changes to the business whenever they want to, or even pivot in a whole new direction.  
  • Personalized service. VSBs operate on a smaller scale, which gives them the bandwidth to provide a personal touch to the products and services they offer their customers. This helps them stand out from the competition.
  • Scalability. Scale up or down, depending on what you need.
  • The ability to take risks. When a VSB is still in its early stages, there’s a lot more wiggle room to create new opportunities and innovate on existing services. Plus, entrepreneurs are naturally inclined to take a chance on bold new ideas. 
  • Fewer bottlenecks. Due to the flexibility that comes with their size, VSBs have fewer levels of team approvals to contend with, allowing them to skip the bureaucratic red tape and get things done quickly and directly.
  • Creative problem solving. Thanks to the elimination of bottlenecks, the ability to take risks, flexibility, and freedom, VSBs provide the perfect environment for trying out new and novel approaches to solving business problems.

Turning a VSB into a large business

With strategic planning, good investments, hard work, and a bit of luck, a very small business might one day grow into a very big one. For VSBs looking to scale and grow, you’ll want to consider the following long-term goals:
  • Increase revenue streams. To take it to the next level, VSBs will need to generate revenue from their total annual sales, then invest those earnings back into the business. Only through steady revenue can a VSB invest back its earnings, grow into a sizeable business, and shed its diminutive label. 
  • Grow customer base. A sure way to increase revenue is to retain and expand the customer base. Many VSBs start out with a limited marketing budget, so it’s important to find out who your audience is, to try to reach them directly, and to encourage referrals whenever possible. 
  • Expand operations. In order to grow even further, VSBs will need to consider potential plans for expansion. This may involve investing more in the existing workspace, opening a new branch in a new location, or moving into entirely new markets. 
  • Hire for growth. As a VSB slowly transforms into a larger business, they’ll likely come across new operational challenges around scale. This is why it’s important to hire specialist roles, like recruiters, accountants, and compliance managers, for the purpose of addressing these needs. 
  • Upgrade software solution. A growing VSB will need a more robust software solution for managing projects, booking meetings, and securing data. Most importantly, the software must have the ability to scale as the business grows.

Conclusion

Growth is the goal of every business owner, whether you’re a solo entrepreneur, the founder of a promising new startup, or a decision-maker at an established organization. But for under-resourced VSBs operating on a limited budget, growth can be especially challenging. Luckily, VSBs have the unique advantage of being nimble, lean, and oftentimes daring, which gives them an edge from the competition. 

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Business Insights and Ideas does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.

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