Photo by Roman Fox on Unsplash
According to SBA estimates, more than 600,000 new businesses open each year in the U.S. With more and more small businesses being created every year, there are many questions about how they are different from bigger businesses. Although small businesses and bigger enterprises may seem to operate in the same ways, they have many significant differences. Thus, it is important to know the differences between the two when deciding what type of company to work at.
Structure
Larger businesses tend to have a more rigid hierarchy and a bureaucratic structure because they have more employees. In this hierarchy, the board of directors and the CEO have the most control in the chain of command. In contrast, many smaller companies only have a small group of people or a single person in charge. This smaller group means that there is no defined hierarchy, and the owners are usually personally responsible for business debts.
Target consumers
Although there may be some overlap in the audience base of large and small businesses, smaller businesses tend to focus on a smaller target audience. Many small businesses focus on selling in a specific market before branching out into other markets. In contrast, bigger firms branch out to a broader base of consumers because of their abundance of resources.
Financing
Small businesses and large businesses raise their funds and finance in different ways. Many small businesses obtain their financing through loans from community development finance institutions and investors or venture capitalists. Additionally, some small businesses will receive grants from the government or the Small Business Administration so they can reach certain research and development goals. Another popular financing method that small businesses use is crowdfunding, where a larger group of people will finance a business instead of just a few investors.
On the other hand, larger businesses can raise money with business loans from banks and larger financial institutions. They also finance themselves by selling stocks or corporate bonds, especially through issuing equity capital by giving shares to shareholders. Additionally, big businesses tend to have more assets that can be used as collateral when necessary.
Advantages of small businesses
Because small businesses have a smaller customer-base, one main advantage of small businesses is that they can make more personal connections with consumers. Additionally, small firms tend to have more flexibility to make changes without all the precautions that big companies have to take. Thus, the shorter chain of command allows for a more efficient response.
Advantages of big businesses
An advantage of larger businesses is that they tend to have a more established reputation and a longer business history. This longer history makes them seem more trustworthy and reliable to investors compared to newer enterprises. Furthermore, larger companies have more employees and resources at their disposal, allowing them to delegate specific, specialized tasks to their employees. The higher number of resources also gives businesses more of a safety net to fall back on in case of an emergency.
