The-state-of-small-business-article.pngby Reed Richardson.

 

Often, small business owners can feel like they’re alone on their own little island when, in fact, they’re experiencing many of the same triumphs and setbacks as other entrepreneurs around the country. So, on the heels of national Small Business Month in May, we thought we’d compile a broad statistical portrait of the state of the nation’s entrepreneurs, using data drawn from a number of private and governmental sources. The following is Part I of our two-part series and it focuses on the current demographic and financial state of our nation’s small businesses. (you can read Part II here)

 

Overall, two primary lessons can be drawn from these surveys. One, entrepreneurs are a hardy lot, since small business activity increased in many respects during what was the worst economic downturn in seven decades. And two, most small businesses are now tentatively moving out of survival mode and focusing more on growth and long-term success.

 

Turning that entrepreneurial optimism into actual success has been anything but easy over these past few years, something that Scott Shane, professor of Entrepreneurial Studies at Case Western Reserve University, says was to be expected. “Decades of data show that interest in entrepreneurial activity is highly correlated with the ‘misery index,’ which is measured by adding the unemployment rate to the inflation rate,” Shane explains. (The misery index reached 12.72, a 20-year high, in December 2009.) “Still, a recession is no friend to entrepreneurs.”

 

Pull-Quote.pngShane’s observation is backed up by quarterly tracking data from the Bureau of Labor and Statistics, which show that private sector business “deaths” have outpaced business “births” throughout the recession, with the churn rate bottoming out in the first quarter of 2009, when the number of businesses closing outnumbered those opening by 63,000. Since then, the business launch rate has held relatively steady—between 170,000 and 180,000 new companies each quarter—while the number of closures has slowly decreased to a level of 200,000 last fall. In addition, financial data indicate that many small businesses stalled out during the recessions first full year of 2008, lost ground in 2009, regained stability last year, and, finally, are poised for growth again in 2011.

 

But there’s a lot here to digest, so dig in and see where your small business does or does not match up with its peers

 

Who are you?

According to the 2011 “State of Small Business Report” (click for full PDF report), which is jointly conducted each year by Network Solutions and the Robert H. Smith Graduate School of Business at the University of Maryland, today’s small business owners form an increasingly diverse cohort, making the idea of a “typical” small business owner obsolete. Still, the study notes that compared to the general population a small business owner is usually “older, more likely to be male, highly experienced, and relatively affluent.” (This survey defined small businesses as those private companies with less than 100 employees that provide their owners with more than 50 percent of their annual income—an estimate that includes just less than 6 million companies nationwide.) Here’s a numerical index of what this year’s “State of Small Business Report” found:

 

Small Business Profile

1 – typical number of locations (86% have a single location)

1.7 – typical number of owners (57% have a single owner, 32% have two, 11% have three or more)

3 – median number of employees (30% have just one employee, the owner)

13 – percentage which are minority-owned (30% by African-Americans, 30% by women, 22% by Hispanics, 17% by those of Asian/Pacific origin)

15 – median age of existence, in years (22% have operated for 5 years or less)

38% – report gross annual sales of less than $125,000

43% – are home-based businesses

48% – are considered “mature” companies by their owners

49% – are in some sort of transition

Of those:

         5% – are startups

         10% – are in the process of closing, being sold, or transferred

         34% – are relatively young, early growth companies

$186,200 – median annual revenue

 

Small Business Owner Profile

10% – report earning at least $200,000 a year

17% – are 65 years or older

24% – are 44 years or younger

28% – are women

50% – have at least a four-year college education

         Of those owners without a four-year degree:

         2% – have less than a high school degree

         17% – have only a high school degree

         29% – have attended a trade school, some college, or have a two-year degree

60% – have worked in their industry for 20 years or more

61% – report earning less than $100,000 a year

80% – founded their current business

 

How are you doing now?

For most small businesses, a roundup of surveys shows that 2010 represented something of a bounce-back year, with many reporting increased revenue, and, according to the “State of Small Business Report,” a slim majority returning to profitability. This marks a dramatic turnaround from the zero or negative growth years of 2008 and 2009, respectively. And while the ugly statistics from those years make the recent, year-over-year positive numbers appear a bit over-inflated, it’s becoming clear that much of the small business sector is slowly beginning to climb out of the deep economic hole.

 

Indeed, even though roughly two-thirds–68%–of small business owners rated the current market conditions as fair or poor, according to this recent survey (also covered in the Wall Street Journal), a large majority of them also report feeling confident that the worst is over and are cautiously optimistic about their prospects in 2011.

 

 

Small Business Profitability Index[i]

• 2009 – +21% (47% reported making money, 26% lost money)

• 2010 – +36% (52% reported making money, 16% lost money)

 

 

Small Business Revenue Index [i]

• 2008 – +1% (30% reported gaining in annual revenue, 29% lost ground)

• 2009 – -9% (24% reported gaining in annual revenue, 33% lost ground)

• 2010 – +23% (38% reported gaining in annual revenue, 15% lost ground)

 

Small Business Owner Satisfaction Level

55% – say ‘being your own boss’ is entrepreneurship’s biggest benefit  [ii]

61% – are ‘highly satisfied’ with their choice of being an entrepreneur [i]

76% – would still start their small business again based on what they know now [ii]

 

Small Business Confidence Level [ii]

69% – report their business is in the same or better shape than in 2010

81% – expect 2011 to be equal to or better than 2010

 

 

For more on the current state of small business, click here to read Part II of our series; it focuses on small business hiring prospects and the challenges facing entrepreneurs as they move forward in a still uncertain economic climate.

 

i – “State of Small Business Report,” February 2011, Network Solutions and Robert H. Smith Graduate School of Business at the
     University of Maryland

ii – Citibank Small Business survey, May 2011