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 FAILURES
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.
Therein lies the problem, how many small business owners truly understand how do “do all things well” when it comes to running a business? Most don’t and whether they take advantage of a program offered free, a program offered through an educational organization, or self-study they still don’t get beyond the basics. They have to find a means to put it all together.
Many buy into the age old “you have to sell more to make more” line. True partially but terribly destructive if not done properly. Small business owners buy advertising that gets them a lot of attention, but unfortunately not the attention of their buyers. Small business owners are convinced that having their website pop up first is an effort worth their limited advertising dollars without considering just how valuable or not valuable that service is.
Running any business, even a small business, is more than simply having a Business Plan that even your bank may not read, a lot of advertising without a plan, and a product or service to sell. It is about having a strategy obtain a steady flow of customers, from multiple sources, to ensure season and economic downturns. It is about a strategy to upsell to new customers and retain existing customers. It is about a financial management strategy that is more than Profit & Loss Statements or balance sheets.
If a Small Business Owner wants a growing sustainable business, one that perhaps they can pass on to their children or that will support them in retirement, they need to give strong consideration to leading their business with more than a lot of advertising, a website and something to sell. Doing only that puts a large majority of business into the 90-95% failure rate as stated by the US Small Business Administration.