What is a US small business? One owner explains
Last week was National Small Business Week, which went virtually unnoticed by most business owners who were busy working. The Small Business Administration and big brands try so hard to celebrate small businesses with events like these. But what they miss are a few sobering facts.
The number of actual small businesses is much fewer than reported.
According to Pew Research, almost two-thirds of our country’s 33m small businesses have fewer than four employees, with most of them being solely owned and operated.
Yes, the number of startups grew during and in the immediate aftermath of Covid. But these are mostly freelance, side gig or independent “businesses” for workers who need extra money.
Is a side gig a small business? Maybe? To me, a real business is an employer-owned business, one that has paychecks and workmen’s compensation and HR policies. According to the US Census Bureau, there are only about 7m employer-owned companies in the country. That’s a far cry from 33m.
Small businesses still aren’t very diverse.
Black-owned businesses are regularly featured in the TV shows from Queen Sugar to Atlanta and Insecure. Anne Hathaway is the cool entrepreneur running an online fashion business in The Intern. Lorelai Gilmore owns and runs the Dragonfly Inn in Gilmore Girls. Mindy Lahiri starts her own fertility clinic in The Mindy Project. Things are changing but this is not reality.
According to Pew Research, 85% of our nation’s business owners are white and 76% are men. And, according to the Small Business Administration, more than half are over the age of 50.
I speak at many associations and groups representing industries around the country, and when I look out at the audience I have to look pretty hard to find a female or a Black or brown face in the crowd. The numbers are creeping up but there’s still a long, long way to go before we see the kind of the equal representation that we see on TV or on the Small Business Administration’s website.
Most small businesses don’t earn much money.
Do you ever walk by that coffee shop, or that boutique with three pairs of shoes in the window, or the store that just sells cookies and wonder to yourself how many cups of coffee, pairs of shoes or cookies they have to sell to earn enough profit to pay themselves? You’re not wrong to wonder. The fact is that most of these small businesses don’t make much money at all.
According to research from the financing site Fundera, small businesses with no employees have an average annual revenue of $46,978, the average small business owner makes $71,813 a year, and 86.3% of small business owners make less than $100,000 a year in income. Opening up a retail location requires rent, utilities, insurance and payroll – and that’s even before you start buying the ingredients for coffee or cookies or inventorying shoes.
The business owners who make money are generally the ones that have people, machines and multiple locations that generate a higher volume of revenue which, at a certain margin, can sustain a profitable cashflow above overhead. This requires capital and sweat and time and even then there are no guarantees that a Starbucks won’t open across the street or a slowing economy forces people to reconsider a $5 cookie. Profits are needed to sustain a business, not just sustainable materials.
Finally, no one really knows how “small businesses” are faring.
Not a week goes by for me without getting some survey or research gauging small business “optimism” or “sentiment”, and they’re all in conflict. The National Federation of Independent Businesses says that small business confidence is the lowest it’s been since 2012. The US Chamber of
Commerce says that small businesses see a “stable” economic environment. Latino business owners are showing a “growing optimism” according to Verizon. A poll of 500-plus business owners from a marketing firm “paints a picture of cautious optimism and resilience”. The messaging platform Slack says that many small business owners are calling 2024 a “make or break year”. Republicans say small businesses are struggling. Democrats say they’re doing just fine.
Just as opinions differ for the economy and the weather, no one really knows how small businesses in this country are doing. And you can’t blame them – we live in a big country. A roofing company can be crushing it in Texas yet a similar company can be struggling in Wisconsin. A tech company may be facing cashflow issues where an energy company is flush. You can’t just generalize.
No one really knows how small businesses in this country are doing