It's Okay to be a Very Small small Business - In Fact, It's GREAT!

Do you describe your company as a "small" business? How does that sit with you?

Business trends ebb and flow. Every once in a while, a big enterprise business realizes that they are ignoring eighty or ninety percent of the market, and they make a big push for "small business." Microsoft did this for about ten years and had spectacular success with their partner program small-business-focused products. Amex and Visa still have small business programs, though much reduced from their peak a dozen years ago.

Today the trend is all about bigger and bigger. After all, a vendor who has hundreds of millions in revenue and is looking for 20-40% growth per year will have great difficulty reaching those targets 1,000 licenses (or endpoints) at a time. There's a quick-win with going after larger MSPs. And when your entire future is measures by the next three months, that's good enough!

But the reality is - It's okay if you're not the focus of the enterprise companies and enterprise-wanna-bes. I'll get into that a bit more in the next blog post. For now, let's look at . . .

The Power of Small Business 

Forbes does a great annual roundup on Small Business stats.[1] Here are some important take-aways.

You are not alone! Quite the contrary. Small business runs the world! Let's look at recent US stats.

• The U.S. Small Business Administration reports that there 33.3 million businesses in the United States qualify as small businesses. That's roughly 99.9% of all U.S. businesses![2] As you can imagine, all other countries have a higher percentage of small businesses compared to enterprise businesses.

• Over 80% of businesses operate without any staff. That is: These are one-person shops. Forbes refers to these businesses variably as "solo ventures" or "solo founders." This raises the question we look at next time: What do you call yourself?

• U.S. small businesses employ roughly 62 million people. That's about 46% of the entire U.S. workforce.[2] About 16% of small businesses have between one and nineteen (1-19) employees. That's about 5.4 million businesses. I hope you don't feel alone now. 

• As Forbes reports, "The average salary of a small business owner is just 16% above the annual mean wage in the U.S. Business owners and entrepreneurs may make up some of the wealthiest people in the world." Of course, this does not include the financial and non-financial benefits of being a business owner. And, of course, the best-run IT consulting businesses are on the high end of these numbers.[3] 

Evolving Demographics

• Millennials own 13% of small businesses in the U.S. Of course, Baby Boomers and Gen X own most businesses, but this is largely due to the fact that the average age for starting a business is 35 years old. This gives us great clarity on who will be starting the new businesses in the next ten years. Welcome them. Engage with them. After all, they're about to take over the world. [4]

• Males have always owned most businesses. But women are certainly starting more and more companies. Currently, 43% of businesses are woman-owned. And this number is growing. Again, take a look at your future and welcome it.[1]

• The U.S. Small Business Administration Office of Advocacy reports that just over twenty percent of small businesses owned by racial minorities (non-whites). And, as you might expect, this number is growing as well. Look at your future and welcome it.[1]

Business Failures

Two key facts here. 

I hope every one of you has read The Emyth Revisiteed by Michael Gerber. If not, today is a great day to start that. For decades, his numbers have been correct. Today we have a bit more detail, but the fundamental truth remains: One in five businesses fail within the first year.

Key Fact #1 - About half of all new businesses fail within the first five years. That breaks down as follows.  [5]

• 20% of businesses fail in the first year
• 30% fail in the second year 
• and a total of 50% by the end of year five.

This highlights a fact that "everyone knows" but few people do anything about. Watching your finances and managing your cash is absolutely critical, especially as a new business. The need never goes away, but we learn by experience what we could be learning from training, books, and self-education. Do not put off this education, no matter where you are in your business.

Key Fact #2 - The most common cause of overall business failure is running out of cash. About 38% of businesses fail due to bad cash flow (or failure to get a loan they can pay off). Again, the sooner you pay attention to finances and financial management the better!

Note that I said overall business failure. For those that fail in the first five years, 42% fail because they did not find or engage a target market.[6] Either they think "everyone" is the target market, or they did not effectively identify and sell an actual target market. Again, everyone hears the advice to focus your attention. But many pay the ultimate price for ignoring this advice.

Note: It is critically important that you understand what we mean by cash flow. This is not the same as profit. You can be profitable and simply not have the cash on hand when you need it. Education can come from training or painful personal experience. You get to decide.

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I know that's a lot of stats. Take is as a starting place. The most important thing you should know is that you're not alone - and there's nothing wrong with being a small small business! You're in great company!

In the next blog post, I want to talk about what you call yourself. Forbes uses two terms above. They're not common phrases I hear among small business owners. So I'd love to have your feedback. How to you describe yourself or your business - in or or two words?

All comments welcome.

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Forbes Advisor has a lot of great collections of statistics here: https://www.forbes.com/advisor/statistics/. Other sources cited:

[1] See https://www.forbes.com/advisor/business/small-business-statistics/. And Forbes Advisor has a lot of great collections of statistics here: https://www.forbes.com/advisor/statistics/.

[2] U.S. Small Business Administration Office of Advocacy 

[3] Guidant Financial

[4] Bloomberg

[5] Fundera  

[6] CBInsights

:-)