Business Sizes: Classifications and Characteristics
Size is one of the most relevant ways in which businesses differ from one another. Regardless of your job, knowing the different business sizes and in which category your hiring organization belongs can prove to be a professional advantage. Being familiar with the most common business sizes and their main characteristics is an important piece of information. In this article, we discuss what the different classifications are for business sizes and describe each one's main characteristics.
What are the classifications for business sizes?
The size of a business is a relative concept and greatly depends on the industry in which it operates. However, there are three main business sizes, and they share some common characteristics irrespective of their field. The main three types of business size classifications are:
Small business: Most businesses in the U.S. fall under this category. The typical characteristics of a small business are having no more than 1,500 employees and an annual revenue of $38.5 million at most.
Mid-market enterprise: These organizations are larger than small businesses but smaller than large enterprises. They generally employ between 1,500 and 2,000 people and have annual revenue between $38.5 million and $1 billion.
Large enterprise: These organizations are relatively few, but their size and ability to dominate a particular market means that they produce the majority of total revenue when taking into account all business sizes in the U.S.
Characteristics of small businesses
Some of the main characteristics of small businesses are:
They can be further categorized. A company with fewer than 100 employees is generally considered a small-sized business, while one with between 100 and 1,500 employees is a medium-sized business. Each industry has slightly different standards regarding what small and medium-sized businesses are, with some government institutions using these standards as part of their loan-granting process.
They usually have limited IT staff. Most small businesses only have one employee who handles all IT-related tasks, with the maximum number of employees in IT-related positions typically being a few at most. Given the lack of need for complex operations, the IT staff usually has limited skills, with many employees learning on the job.
They're usually limited geographically. Small businesses usually only have one location. However, due to outsourcing and remote work, some employees may work remotely from other geographical locations.
They usually serve a limited geographical area. Small businesses usually have to limit their operations to a relatively small geographical area due to the logistical difficulties of expanding. Companies that want to expand into new areas usually have to hire new employees, which usually pushes them into a new size classification.
They tend to choose technology based on price and accessibility. When investing in new technology to help their operations, small businesses usually have price and ease of use as their main two criteria, due to limited capital and lack of employee experience, respectively. Also, they tend to prefer renting or using pay-as-you-go subscription services instead of buying equipment and software.
They're organized as sole proprietorships, partnerships or LLCs. Most small businesses choose forms of organization that allow their owners to exercise full control. Depending on the ownership structure, they're usually sole proprietorships, partnerships or limited liability companies.
They have one decision-maker. Small businesses typically have one main executive who makes the majority of important business decisions. They don't usually delegate decisions, as small business owners tend to have a distinct vision of how their company needs to be run.
They employ relatively few specialists. Most small businesses don't hire functional specialists to handle specific tasks, mostly due to budget limitations. The most highly skilled person in the company is usually the owner, and specialized tasks, such as accounting and legal issues, are usually outsourced.
Related: What Is Business Administration?
Characteristics of mid-market enterprises
Some of the main characteristics of a mid-market enterprise are:
There are more specialized roles. Once a company evolves from being a small business to a mid-market enterprise, the number and complexity of actions and decisions increases, which prompts the need for specialized roles.
The entrepreneur delegates more. As opposed to small businesses, where owners tend to make the most important decisions, mid-market enterprise owners need management skills to delegate responsibilities to others.
They're privately owned. Similar to small businesses, most mid-market enterprises are privately owned and managed by their original founders.
They're likely to have multiple locations and remote employees. As a business expands, it often needs to expand and open new locations. It's also more likely to hire remote employees.
Related: What Is Capital in Business?
Characteristics of large enterprises
Some of the main characteristics of large enterprises are:
They're usually international. Although large enterprises are typically based in one country, they tend to operate in many other countries throughout the world. Depending on the exact nature of the business, it can be managed remotely from its headquarters or have branches in multiple geographical locations.
They have highly specialized departments. Large organizations have distinct departments, such as human resources, finance, marketing, sales and research and development. They're independently managed by department managers and employ specialists in their fields.
They're usually organized as corporations. Unlike small and mid-market enterprises, which are usually directly owned by a person or group of people, large organizations are usually organized as corporations to separate their tax burden from their owners.
Their owners don't usually run them directly. Corporate owners don't usually manage their companies. Instead, they appoint a board of directors by vote and task them with making all business decisions.
They tend to appeal to a wider range of consumers. While smaller companies can generate a profit by focusing on a single product or service, a small geographical area of a specific customer type, large organizations usually appeal to a wide range of consumers and constantly look for ways to sell their goods and services to new markets.
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