A lot of small businesses choose colocation as their hosting options; simply because it provides what large IT departments can give but with lesser cost. Although it is generally more expensive than standard web hosting; however it provides greater bandwidth into the place of your business.
Major disadvantage of colocation is there are lesser providers on this kind of web services. Another thing is if you have to move to another place outside the area of your colocation provider then it is either you move your server to the new found provider or leave it behind. Hence it is considered costly compared to managed hosting.
In managed hosting , it is your provider who is responsible for providing a stable environment for all the applications needed for your site. It provides more value for your money because you do not have to hire IT people to effectively support your business.
Whether you choose colocation or manage hosting; you really need to study all options available for your business. Weigh the pros and cons on all hosting options available then decide which one is suitable for your small business. Most small businesses are very keen about the cost; check whether your business can cope up with the cost required on either hosting options.