On the surface, the difference between a small business and a big business seems simple. In fact, it says so right in the name. Small businesses are just like big businesses, only smaller. However, a closer examination will show that while the size of the business plays a factor, there are many more differences when comparing the two types.
It doesn’t all come down to the number of employees a business has. Numerous other factors such as organizational structure, revenue generation, roles within the business, and more help define what separates a large business from a small one. If you’re thinking about starting a business or are seeking to grow one you already have, knowing about these differences will help influence your decision.
In this article, learn about the main differences between small and big businesses, as well as the advantages and disadvantages that each type provides.
Small Business vs. Big Business: The Main Differences
“To be successful, you have to have your heart in your business, and your business in your heart.”Thomas Watson Sr.
The U.S. Small Business Administration (SBA) has a clear line that separates small businesses from big businesses. According to the SBA, any company that has fewer than 500 employees is a small business, while anything above that is a large business. That means almost all companies in the nation (99.9 percent) qualify as a small business.
But most people likely don’t consider a company with 400 employees to be a small business. Breaking down the stats even further, they show that around 85 percent of small businesses have fewer than 20 employees. That fits more in line with people’s perception of a small company.
However, the size of the company isn’t the only main difference between small and large businesses. Here are some other factors separating the two types.
- Small businesses primarily receive funding through owners’ personal savings or bank loans.
- Larger companies may get money through investors.
- Big businesses often have a firm bureaucracy and an established system of governance.
- Small businesses will answer to only one person at the head of the organization.
- Small businesses deal with fewer overhead costs.
- Big businesses often need to account for bigger expenses by completing bigger projects.
As always, there are caveats to these differences. Some small businesses may still find investors, while large companies may take out enormous loans. Or a big business might not have clearly defined roles for everyone, while a small business may have a more rigid organization. In general, the differences are relatively consistent and help define the gulf between larger and small businesses.
What Are the Advantages and Disadvantages of a Small Business?
“A big business starts small.”Richard Branson
- Versatility: If your company needs to respond to a new challenge or take advantage of a new opportunity, you can do so quickly. Your ability to pivot is enhanced, and there are fewer delays.
- Decision-Making: As the owner of a small business, you get to make the decisions. You don’t have to pass decisions through multiple committees or receive approval from a board if you want your business to do something. Generally, everything is in your control, and you are the most important factor in deciding what gets done.
- Culture: Small businesses can instill a positive culture more easily since the culture usually only extends to a few dozen employees. This also means communication is much easier, and messages are less likely to be misunderstood.
Fact: According to the SBA, about 50 percent of small businesses are based out of a person’s home.
- Financing: Simply put, you’re on the hook for your company’s finances. Most likely, you’re the one who put your money into the business, which means it’s your money on the line if things don’t work out. Many small business owners go into debt to get their companies off the ground, which makes for an extra degree of risk.
- Legal Structure: Many small business owners begin as sole proprietors or partners in their businesses. That makes them legally liable for what happens in their companies. It should be noted they can sometimes address this issue by setting up an LLC. They also have to pay taxes from their company’s profits through their own tax returns.
- Benefits: Small businesses simply don’t have the same resources that larger companies do. As a consequence, small businesses often can’t provide their employees with the benefits and perks seen among global corporations.
Fact: The average salary of a small business owner is about 3 percent above the national average.
What Are the Advantages and Disadvantages of a Big Business?
“There are no great limits to growth because there are no limits of human intelligence, imagination and wonder.”Ronald Reagan
- Financing: Big businesses can often get the backing of significant investors. They may even be able to receive support from venture capital firms or through the sale of stock. This all means that larger businesses can spread the financial risk rather than putting it all on one person.
- Diverse Offerings: With more resources at their disposal, many big businesses can focus beyond one or two core products or services. They can diversify what they offer, whereas small businesses can only concentrate on limited offerings to a smaller core customer base.
- Specialization: Big businesses can help their workforce specialize in specific categories, such as sales, customer service, IT, and more. Small businesses don’t have this luxury and often have employees who have to cover multiple areas at once.
Fact: More than 2,200 businesses in the U.S. have more than 5,000 employees.
- Bureaucracy: When businesses grow large, they usually have to move beyond partnerships and sole proprietorships. That means a lot more reporting to government agencies, such as through SEC filings.
- Ownership: The ownership of a large company rarely consists of one or even a few people at the top. Instead, ownership is spread out among shareholders, who can appoint business leaders through a vote. This makes the decision-making process much longer and less flexible.
- Quick Innovation: While big businesses have the resources to spend on research and development, true innovation can take a long time to implement. This is partly due to needing to work within a large corporate structure to get the right approvals. Smaller businesses are more agile and can institute changes more quickly.
Fact: Fortune 500 companies recorded $1.8 trillion in profits in 2021.
The Better Choice Depends on Long-Term Goals
“Good business leaders create a vision, articulate the vision, passionately own the vision and relentlessly drive it to completion.”Jack Welch
The choice you make on the size of business you want to pursue will largely depend on what your goals are. When you have goals and a clearly defined vision, you can set the correct course and create the right company for you. In this way, you can use the advantages of a small business or big business.
For example, if you want to practice servant leadership, starting a small business can help you connect with and benefit your local community. As Darn Good Yarn CEO Nicole Snow says, “A small business is an amazing way to serve and leave an impact on the world you live in.”
But first, you need to chart your course, set goals, and have clarity with your vision. Here are a few tips you can follow to do that.
- Create a vision board outlining what you hope to achieve in your life.
- Write down a vision statement you can live your life by.
- Start journaling as a way to chronicle your thoughts and dreams.
- Meditate for around 10 to 15 minutes every day.
- Practice goal-setting by creating SMART goals that will help you reach new heights.
For more information on visualization techniques, check out the following article:
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- Fortune Editors. (2022, December 16). Fortune 500. Fortune. https://fortune.com/ranking/fortune500/
- Main, K. (2022, December 7). Small Business Statistics Of 2023. Forbes Advisor. https://www.forbes.com/advisor/business/small-business-statistics/
- Rajnerowicz, K. (2023). 12 Small Business Statistics: Facts & Numbers for 2023. Tidio. https://www.tidio.com/blog/small-business-statistics/
- Statista. (2022, September 30). U.S. number of employer firms 2019, by employment size. https://www.statista.com/statistics/487741/number-of-firms-in-the-us-by-employment-size/
- U.S. Small Business Administration Office of Advocacy. “Frequently Asked Questions About Small Business.” https://www.sba.gov/sites/default/files/advocacy/Frequently-Asked-Questions-Small-Business-2018.pdf