What is Small Business in America? By some definition it is companies of less than 100 employees. By others it is less than 500 employees. Some include home based businesses, some do not. For simplicity we will focus on companies of less than 100 employees and exclude home based business.
There are 8.1 Million Small Businesses in America today. They employ over half of all private sector workers and almost 40% of those in High Tech jobs (approximately 130 million workers). They provide between 60% and 80% of all net new jobs annually. They produce more than half of all nonfarm private gross domestic profit in the US (roughly $6 Trillion). Small Business is important.
Pretty impressive stuff. They also account for over 52% of all retail sales, over 46% of all wholesale sales and almost 25% of all manufacturing sales. The average annual gross revenue of a small business is $3.6M. Small Business is profitable.
Following the collapse of the global economy in 2008, there have been more small business start-ups than at any other time in history. Unfortunately, within 5 years of opening, according to the US Small Business Administration, almost 90% of all small businesses fail. Why? Because often times they are experts at what they do but lack education and training in how to run or operate a business.
So why would I suggest there is a problem with Small business? One simple issue…those failure rates.
According to the U.S. Small Business Administration:
Overall Small Business Failure
Year 1 85%
Year 2 70%
Year 3 62%
Year 4 55%
By year 10 it is 3.5%
Those are some pretty scary numbers. But remember, small business accounts for over half of the US nonfarm Gross Domestic Profit in the US with an average Gross Revenue of $3.6M.
Small business owners are usually very good at what they do…manufacturing something, providing a service, etc. What many of them lack is the know how to manage all aspects of the day to day operations of that business to include producing that product or delivering that service. The high failure rate is due to the very real fact that they do not have the training, education, knowledge or experience to do it all. To be successful they must do it all and do it well.
An important issue for small business is determining how it should be structured. Remember, a small business must produce, market and sell, take care of its customers and ensure that everything it does is the most productive and profitable. Contained in all of that of course is the management of its finances. So how can it do this?
Lets develop a Venn Organization. This is based on a Venn Diagram. This diagram, looks exactly like this:
Every function in those circles has a financial contribution to the company. Those either increase sales or decrease costs. Understanding the relationship between them makes growing your company simpler.
So as you look at this you may be wondering how many people this will take. The answer is anywhere from 1 to 8. Oh, and one more as the business owner or leader. So how do you get there and how do you make this work?
The obvious is hard work and collaboration. If you are the only person in your company you are performing everything in the chart. Collaboration would seem obvious but for most of us we do the things we like or are most comfortable with. You have to do it all…EQUALLY. As you grow your business you can start delegating by hiring someone to perform the work for each circle. Eventually you have a team of at least 4 Managers giving you the time to actually work ON YOUR BUSINESS instead of IN YOUR BUSINESS.
Working on your business gives you a better opportunity for long term growth and sustainment.