Why micro-businesses are small but mighty

It is a fact that most businesses are very small. National data shows that in 2023 there were around 2.7 million businesses operating in the UK and 89 percent of these were classed as ‘micro” – employing fewer than 10 people.  In contrast, less than half a percent were classified as “large” – employed more than 250. 

The same is true of Cumbria.  In 2023 there were 22,705 enterprises registered in the county of which 20,225 (89 per cent) were “micro-businesses” while only 65 enterprises (0.3 per cent) employed more than 250 workers. 

Of course, it is obvious that larger businesses are major contributors to employment and output totals; their economic significance as measured by gross-value-added (GVA) is considerable. Micro-businesses, however, have a distinctive character and collectively they can play a major role in sustaining local economies.

Individually, micro-businesses are invariably the product of the ambitions, experience and skills of owner-managers who usually operate close to where they reside. Embedded in communities, business decisions are often influenced by non-economic as well as economic objectives. Micro-businesses can also be vulnerable due to lack of financial resources and there are usually major time constraints on owner-managers that are widely recognised as a significant block on growth potential.

Collectively, however, the recent history of the county has shown that micro-businesses display other characteristics that underpin resilience in local economies. This has been demonstrated through many economic crises in Cumbria – the foot-and-mouth outbreak, flooding events and, most recently, through the pandemic. Micro-businesses may be vulnerable, but they have repeatedly shown a capacity to be flexible and agile in response to economic shocks.

There have also been interesting changes in the character of micro-business in recent decades. Traditionally, micro-businesses have tended to be associated with local markets, hence there is often a strong symbiotic relationship between the business and the community – the business does well when the community is cohesive and the community is strengthened by the activities of entrepreneurs. 

However, recent research has shown that micro-businesses are extremely varied in character. Also, an increasing number have been able to invest in digital skills and tools that generate considerable productivity gains, which has transformed ways of conducting business across all sectors (see, for instance Frontier Economics,2023, “The Impact of Digital Microbusinesses on Local Economic Outcomes in the UK” www.frontier-economics.com). These include increased access to information, communication with clients over greater distances and an ability to access a wider range of financial services. Micro-businesses have also been able to develop products for markets involving entirely new digital applications.

Latest data reveals some interesting patterns of micro-businesses in Cumbria (National Statistics data on UK Business Counts – Enterprises by industry 2023). Over one fifth of all micro-businesses in the county (4,605) are in the land-based economy and a further 2,780 are in construction. Other prominent sectors include professional services (1,950), accommodation & food services (1,510), retailing (1,345), business administration (1,290) and arts & entertainment (1,200). Taken together, these top seven sectors account for over 70 percent of all micro-businesses. Data also shows that in some sectors, micro-businesses are by far the most common form of enterprise – notably in agriculture, financial & insurance, construction, professional services and property. 

This data can be used to show trends over time in the number of micro-businesses operating in Cumbria. In 2023, there were over 20,225 enterprises with less than 10 workers in the county but this total had fallen by 950 since 2019 representing a -4.5 per cent decline. This compares with only a marginal decline of -0.1 per cent nationally. 

However, there are some interesting variations in these trends between different sectors of the economy. There were significant falls in the number of micro-businesses in professional services (-745), business administration (-270), agriculture (-185) and information & communications (-105).  However, growth in numbers have occurred in finance & insurance (+130), property (+115) and transport & storage (+105).  Encouragingly, microbusinesses also grew in number in two other key sectors for Cumbria; accommodation & food services (+40) and retailing (+20). 

This change data reveals that individual micro-businesses can be vulnerable when faced with economic disruption. But in terms of the performance of local economies as a whole, it is often argued that a small business culture can create an environment within which new ideas can be put into practice including the development of new products and new ways to access customers and clients. Collectively, micro-businesses can provide significant employment opportunities within localities and help to diversify economic activity by reducing dependence on larger single-industry employers. Owner-managers of micro-businesses can be seen as a vital resource for communities. They often operate within, and form parts of, formal and informal business networks that facilitate the spread of ideas and provide a knowledge base that forms a basis for collective learning within local economies.