The term ‘small business’ is too broad – it’s time to recognise ‘micro businesses’ as their own category. Here’s why it matters for policy, funding, and support.
Last October, a call to change the legal definition of a small business sparked widespread debate. Said call came from the Australian Chamber of Commerce and Industry, which has been campaigning to change the definition of “small business” in the Fair Work Act from a maximum 15 employees to a maximum 25.
“We think that would have a very significant impact in helping to reduce the level of compliance and red tape that small business has to deal with under current arrangements,” ACCI CEO Andrew McKellar said last year.
Here, he refers to the benefits that businesses receive when they are deemed “small”, such as decreased regulation, lower taxes, and more favourable loan conditions. The logic is that, if more businesses could access these benefits, it would be better for everyone.
The ACCI’s plan got some support, including from the employer organisation Ai Group.
“The current definition clearly discourages growth, investment and employment in businesses that have the potential to be significant contributors to their local, as well as the national, economy,” Ai Group CEO Innes Willox says. “Any business with 25 employees or less is, in reality, still a very small business.”
Despite the campaigning, the current government is unlikely to widen the definition of a small business. Minister for Employment and Workplace Relations Murray Watt was emphatic in his disapproval.
“So many Australians are doing it tough and the last thing we should be doing is making it easier for businesses to sack people,” Watt said in an interview on the Nine morning program “Today”. “This is a time that people need to hang on to their jobs, not be at risk of losing them, and we don’t want to do anything that’s going to jeopardise this.”
So expanding the definition of a small business to include larger businesses isn’t something that’s likely to happen any time soon.
What remains largely undiscussed, however, are those businesses on the other side of the size scale – those with only a few employees or who have lower revenue. How does the current definition of a small business serve them?
The small businesses we forget
ISB has heard from representatives of a few of these smaller small businesses, who have pointed out the blind spot in the legislation when it comes to businesses of their size. Business owner Ela Gold, who has two employees, tells ISB she finds it “insulting” that all small businesses are under one definitional umbrella.
“I think there needs to be multiple differentiations of small businesses,” the owner of Vitalis Health says. “Like a ‘microbusiness’ with one to two people working, to a ‘small business’ with two to five people working. Everything after that is not small.”
Ela says she’s had practical issues with being a “smaller” small business; for instance, she says she has looked at purchasing subscriptions to software services that claim to support small businesses, but found that she must have at least five employees to sign up.
“How does that help someone who is one person running a business?” she asks.
Another issue we’ve heard from a few businesses is needing to make $75,000 in revenue to register for GST. The threshold effectively excludes the smallest of businesses from applying for grants or relief payments.
“Many small businesses – especially sole operators and mums in business – struggle to access financial support like grants because they are not yet GST-registered,” says Jo McKenzie, a sole-trader and the owner of virtual digital support business Call on Jo. “Most grants currently require GST registration, effectively excluding a significant portion of small-business owners who would greatly benefit from this assistance.”
Data from the Australian Bureau of Statistics shows the vast majority of Australian businesses look like Ela’s and Jo’s: 89 per cent have fewer than five employees, while 67 per cent of businesses make less than $200,000 a year. Despite this, these smaller small businesses rarely get talked about – including in the debate about the small business definition.
The case for narrowing the definition of a small business
There are, indeed, some calling for the definition of a small business to be refined to reflect the needs of the tiniest enterprises.
One organisation doing just this is Global Sisters, a not-for-profit with the core mission of supporting women-led micro businesses. A micro business, the ABS states, is any business that has between one and four employees. Global Sisters have their own ideas about how the smallest category should be defined.
ISB sat down with CEO Mandy Richards and CFO Heather Thomson, of Global Sisters, to discuss why micro businesses – the smallest of the small businesses – should be given a definition of their own.
“Micro businesses are the backbone of this economy,” Mandy Richards says. “They are so important in situations where women are stuck by their circumstances and they need a flexible means of earning an income…but they’re not recognised and supported by the welfare system, finance or just by society in general.”
“We’re doing a lot to recognise micro business as a genuine category,” Heather says. “So that we can create the legislation and the policies and the systems and institutions to support them.”
Mandy and Heather say the current system fails very small businesses on multiple fronts. Firstly, they’re often overlooked as viable business models and instead dismissed as hobbies or side-hustles. This means they’re either left out of data or amalgamated into wider business data, obscuring their contribution to the economy and society.
Covering both small and very small businesses with the same definition also means the smallest ones miss out on tailored support, both educational and financial.
To make matters even worse for these smaller small businesses, banks and investors tend to view them as less attractive due to their lack of collateral.
“We see this big gap in the market where the banks aren’t providing loans to micro businesses because they don’t have collateral,” Heather says. “That’s one of our big calls to the finance sector – to really be able to design these products, not for SMEs, but for micro businesses.”
What banks are missing is that these smallest businesses, on average, are less risky than larger businesses, Heather says. Micro businesses grow much more slowly – and much more sustainably – than larger or more fiscally ambitious businesses. This means they are typically less risky, she explains.
“The common narrative is that all SMEs fail in the first three years of operation,” Heather points out. “We get asked all the time: ‘Don’t these fail in the first three years?’. But micro businesses don’t have that same trajectory. They have a slow growth rate, but are more sustainable – even during the pandemic, even now, when we’re seeing so many SMEs and larger businesses closing.”
Growing more slowly means micro businesses need different financial products and services than larger businesses. But because they are overlooked, these products and services are often unavailable.
What should be the cut-off point?
Global Sisters refers to very small businesses as ‘micro’ – but Heather and Mandy say that micro businesses shouldn’t just be one overarching category either. They want the category to be further broken down into three subsets:
- An employer micro business, which has a turnover of between $200,000 and $2 million
- A self-employed micro business, which consists of a sole trader with an annual turnover of between $50,000 and $200,000
- An informal micro business, which has a turnover of between zero and $50,000.
A full infographic of Global Sisters’ proposed definitional system can be seen below.
The infographic emphasises just how many businesses we’re discussing when we talk about micro businesses – about nine in 10. If official bodies were to adopt these definitions, Global Sisters states, we would have a much clearer picture of how businesses in Australia contribute to employment and the economy.
Micro business and small business: a comparison
Let’s compare two case studies: a micro business and a small business.
Micro business case study: Cyana Duong
Global Sisters has supported hundreds of micro businesses since its inception. Silk flowers retailer Camie Fleur, run by Cyana Duong, is one of them.
Employees: Three
Reason for starting the business: Bringing sustainability to the floral industry and offering employment opportunities to migrant women.
Time to generate profit: A year-and-a-half
Initial funding: Bootstrapped
Current funding: Savings and reinvesting profits, grants, crowdfunding
Short-term ambitions: Grow wholesale partnerships, boost manufacturing, design new products, and create more jobs for women and people with disabilities.
Long-term ambitions: Become a globally recognised brand while staying true to ethos of sustainability and inclusivity.
Describes the business as: Small business or start-up
Small business case study: PopBox
PopBox is definitionally a small business, but has a much more ambitious strategy than Camie Fleur. Founder Mark has built his own factory and imported custom machinery using investor funds.
Employees: 14
Reason for starting the business: Founder Mark Adamson was already the chair of a business, but wanted to run a business that sold directly to the end user. He also discovered a microwave popcorn product in Europe that inspired him to make something similar with Australian produce.
Time to generate profit: The company still isn’t profitable, but Mark expects it will be this financial year.
Initial funding: Equity funding
Current funding: Equity funding and a small amount from the bank
Short-term ambitions: Increase brand awareness.
Long-term ambitions: Mark says he is “ambivalent” about this, but believes strongly in his product and thinks it will end up a market leader in ANZ.
Describes the business as: Initially a start-up, but now a ‘grow-up’ (the stage after a start-up).
Camie Fleur and PopBox align with Global Sisters’ definitions of a micro business and small business, respectively, in terms of employee headcount and funding structure. PopBox’s operations are more complex and the business relies on equity funding and bank loans. Camie Fleur hasn’t made the same up-front investment in production infrastructure, but its growth strategy looks much less risky.
While we designated the micro business and small business labels to Camie Fleur and PopBox, neither of their owners uses these labels.
For one, Cyana of Camie Fleur does not use the term micro business to describe herself. She’s certainly not alone among business-owners with operations of the same size. Heather tells us that many people – including business owners – tend to not use this label, either because they don’t know what it means, or because they don’t think others will know what it means.
“I don’t think many people know what a micro business is,” Heather says. “It’s not part of common language.”
Mark from PopBox, on the other hand, thinks of his business very differently – he describes it as “no longer a start-up”. The founder explains that he saw PopBox as a start-up previously, but no longer does, now that the company has entered a less risky stage.
Should ‘start-up’ also have its own legal category?
Speaking of start-ups: If micro businesses should get their own recognition, what about start-ups?
Start-ups are more complicated because they are more defined by an attitude than a business structure, explains small business strategist and author, Andrew Griffiths.
“With a start-up, the feeling is that you’re building something to grow and sell,” Andrew says. “It’s almost like the exit plan is developed before the actual business is up and running.”
Mandy from Global Sisters thinks similarly.
“That traditional entrepreneur start-up, it’s a very masculine approach, like, go hard and fast, we’ll get a bunch of cash, and then we’ll probably fail dramatically,” she describes.
The idea of a start-up being based on attitude – rather than the size of a business – is evident in how both Cyana and Mark have both called their businesses start-ups, despite their operations being quite different.
Additionally, small-business founders often start their businesses for different reasons than start-up founders, Andrew has observed. Some do it because they dislike working for others and want a more flexible lifestyle, while others are trying to make a career out of what they love.
“A small-business owner often starts a small business, I find, because they’re good at something,” he explains. “They see demand in the marketplace. They perhaps love what they do, would rather do it for themselves.”
Though Andrew, Heather and Mandy all agree on the main difference between a start-up and a small business being an attitude, Andrew points out that there are definitely more concrete differences between the two. Funding is one. While start-ups often attract venture capitalists and private equity, small businesses are more likely to go down traditional funding routes, turning to banks for loans.
Styling yourself as a start-up can also change the way others approach it, Andrew adds. This includes the aforementioned investors, but also employees and collaborators.
“A lot of people like the idea of a start-up, obviously, and also like the idea of maybe being in early, at the ground, maybe there’s a bigger payout,” Andrew says. “You definitely attract the right people: venture capitalists and private equity people.”
In other words, someone who calls their venture a start-up has different needs, beliefs and priorities than someone who runs a small business. If you want your business to take off into the stratosphere, you might find yourself in a better place if you seek out support, advice, and networking opportunities that align with a start-up perspective.
Start-up case study: Blossom
Blossom is a micro-investment app pitched at “the everyday investor”, offering accessible investment options with two fixed-income products. Its founders, Gaby and Ali Rosenberg, have big ambitions for their venture – their attitude towards their business definitely aligns with what our experts describe.
Employees: Six
Reason for starting the business: Noticed a gap in the market for everyday investors
Time to generate profit: 11 months
Initial funding: Loan from financial services licence provider
Current funding: Revenue generated from funds under management invested in the Blossom Fund
Short-term ambitions: Reach $175 million in FUM by Dec 31, 2025. Add new accounts and a new product.
Long-term ambitions: “Global domination – we want to be the go-to fixed-income platform in Australia, New Zealand and far away markets!”
Describe the business as: Start-up
Final thoughts
In sum, there’s a growing sentiment out there that the smallest of businesses should be formally recognised with their own legal definition. With the vast majority of Australian businesses on this very small end of the spectrum, it’s certainly the right move to consider whether their needs are really being met by the current systems and definitions in place.
This article first appeared in issue 47 of the Inside Small Business quarterly magazine
