According to the Small Business Administration, there are 28 million small firms in the U.S. On its face, that number proves that small business in America is actually quite big. Indeed, as I’ve proudly pointed out in this space for the past 20 years, the small business sector is responsible for creating half of the U.S. economy, and employs over half of all private sector employees. Nothing diminutive about that.
Just as it’s instructive to segment big businesses into categories, it’s also handy to put that 28 million number into perspective. The prime calculation divides small firms in two, 80/20: 22 million individual operators with no employees, and about 6 million entities with between 1 – 500 employees. Five hundred is the SBA’s line between large and small business.
Speaking of employees, it’s more than noteworthy to recognize that almost 90% of small employers have less than 20. And not to take anything away from larger small businesses, but that greatest cohort of small employers represents the big gear in the Main Street economic machine. And it’s the posterchild for capitalism writ small: a locally owned, family run business, providing income for several community residents, while likely being perennial supporters of non-profit entities that round out the rough edges of every community. Oh, and those owners know the names of all their employees’ children.
Other small business parameters include the two big buckets: retail and wholesale, aka business-to-consumer (B2C) and business-to-business (B2B) respectively. And of course, there’s the segmentation that includes our agrarian heroes who help feed the world, America’s farmers and ranchers.
There is one segmentation criteria that cuts across all sectors: how a small business owner thinks about growth. On Main Street, growth is a metaphor for where we’re going. Most of the millions of non-employee owners have what’s known as a “lifestyle” business, and they’re typically content if next year looks a lot like this year. Still, many of the 22 million independent contractors – as I once was – want to grow to the next level, with employees. And of course, the six million firms with employees almost always have some kind of growth perspective and plan.
How growth is funded at the small employer level is yet another way to segment Main Street businesses. Only a tiny percentage of these employers are looking for investor funding or has a burning desire to “go public.” The rest have discovered that professional fulfillment and financial independence can be achieved while balancing their entrepreneurial ambition and the quest for work-life balance. In fact, more than any other, this sector personifies the American Dream, as it represents the foundational critical mass of the local economy and society: a small business planted in the ground on Main Street, making payroll every week.
In 2009 I predicted that those firms that survived the challenging period ahead would emerge with stronger balance sheets and cash positions. Recently, in an online poll, we asked small business owners how they would fund growth going forward. Two-thirds said they would use their own capital rather than debt (read: stronger balance sheets and cash positions). It must be noted that this level of self-funding of growth is unprecedented in the past half century. By deleveraging and becoming better managers, they became the master of their own growth fate.
With some help from the new tax law, the least oppressive regulatory conditions in decades, reported pricing power at a level not seen in years, and a truly expanding national economy, our survey indicated most small businesses in every segment are experiencing good times. It’s about time.
Write this on a rock …
There’s nothing small – or insignificant – about America’s small business segments.