DEFINITION of 'Microenterprise'

A microenterprise is a small business that employs a small number of employees. A microenterprise will usually operate with fewer than 10 people and is started with a small amount of capital. Most microenterprises specialize in providing goods or services for their local areas.

BREAKING DOWN 'Microenterprise'

Microenterprises serve a vital purpose in improving the quality of life for people in developing countries. Microfinance seeks to help microenterprises by loaning small amounts of capital to these businesses. This allows poor individuals or families to start their own businesses, earn income and benefit their communities.

For example, a woman in a developing country may use microcredit to take out a loan and purchase a sewing machine. She could use the machine to establish a microenterprise that specializes in tailoring. The woman would increase her wealth and help her community by providing a service.

Where Microenterprises Fit in the Economy

Microenterprises, while individually small in size and scope, can collectively represent a substantial portion of the economy and employment. Types of businesses that are considered microenterprises include the following:

  • Lawn and landscaping companies
  • Street vendors
  • Carpenters
  • Plumbers
  • Independent mechanics
  • Machine shop operators

Bakery owners and caterers can be counted as microenterprises, just as seamstresses, dry cleaners, and private tailors can fall into this category.

The presumption is that these businesses are not likely to grow to considerable size unless an aggressive strategy is put in motion. For instance, a street vendor might operate a cart for making and selling gyros on busy corners. Unless they have the resources to hire others who can perform the same task consistently – and they have assets to acquire more of these carts – it will be challenging to scale up the business the way a quick-serve franchise might.

Since the scope of the operation is so tightly focused, the operation may have difficulty growing into an even larger operation. Given their size and resources, microenterprises may also be limited in their access to financial advisors and expertise that may help them better manage their business. While they can afford to operate and provide income to themselves and staff, they might not have the liquidity to procure other services that might aid in their development.

There are ways for microenterprises to grow into more established small businesses and larger companies. If they can secure the financial resources, one approach is to acquire multiple comparable businesses and then combine them into a larger entity that operates across several. This may require buying out rivals who have claimed different territory within a market.

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