Alf's Articles

Get The Who, What and Why of Small Business

by Alf Nucifora

One of the most misunderstood, least appreciated, hardest-to-grasp business environments is small business. The numbers are staggering; the category potential enormous. But reliable research insight into the mind and body of small business has always been lean and difficult to acquire. Until now. An interesting research study entitled "Where Is Small Business Today?" commissioned by the Network of City Business Journals (NCBJ), adds flesh to the bones of the small business sector. A telephone survey of 706 small business owners, presidents and CEO's conducted in August-September 2002 tells us a lot about who owns and runs small business as well as how they think and behave. For the sake of the NCBJ study, small business was defined as companies with 1-100 employees with the principal(s) not self-employed.

Who Are They?

Current data pegs the number of small businesses in the United States at 7,000,000 plus with an average employee count of 6.5 and with 70% of those businesses grossing more than one million dollars in annual sales revenue. About one-third are owned by women and approximately 20% are home-based. According to the National Federation of Independent Business (NFIB), small business generates 40% of the US gross domestic product and is responsible for creating 80% of all new employment in the country.

There are not too many surprises about the small business owner personally. Half are college graduates; average net worth is a healthy $600,000. The large majority are married and getting older (average age 49).

Not unexpectedly, four out of ten small businesses are in the services sector (the largest subset). Another 22% are in retailing (which has taken a 19% dive in the last two years). On the other hand, the financial/insurance/real estate category has seen an 83% growth rate in start-ups during that same period.

How Do They Run Their Businesses?

The boss is always the boss. Although a quarter will listen to advice and input from other sources within the company, ultimately 62% make the final decision (either in purchasing or in company direction). A third share the decision-making with others in their company, a rising trend (+30%) from two years ago, indicating that the move away from hierarchical decision making to a more centrarchical, collegial, team-driven style is now possibly taking hold.

There have been other significant shifts in the decision making process. A growing number of small business chiefs (+25%) prefer to buy products in person rather than by phone or the Internet, a trend that reinforces the recently forgotten but now appreciated need for relationship-building in the buyer-seller transaction. Incidentally, 74% indicate that they generally do business with companies where they have a personal relationship with someone in that company. As to be expected in recessionary times, more than a quarter (27%) will buy an unknown brand in order to save money, a trend that grew by 50% during the last two years. At the same time, there has been a noticeable drop-off (-16%) who say that saving time is more important than saving money.

How Are They Spending Their Money?

The good news is that 81% made a capital purchase in the last twelve months, a percentage that grew during the economic downturn that has taken place since 2000.

Small business is also growing very comfortable with the Internet. More than two-thirds (66%) are purchasing goods and services on the Internet. But where the real growth has taken place in the last twenty-four months is in making financial transactions online, e.g., paying bills, transferring funds (up 45%), recruiting job applicants (up 140%), and selling goods and services through online auction (up 111%).

Small business is not too happy with its banking relationships, not surprising given the arrogance, bureaucratic road blocking, and lack of interest with which traditional banking generally regards the small business customer. In response, small business is beginning to migrate away from the traditional bank or S&L to other financial services providers. During the last two years, there has been a 14% drop-off in use of banks/S&L's, offset by a 65% growth in the use of non-bank financial providers (e.g., credit card issuers), a 190% increase in use of insurance companies, and a 400% increase in the use of commercial finance and mortgage companies. The dollars are now more readily available at places other than the banking behemoths and small business is following them there.

What Drives Them?

The small business person wants to make money, but it's not the primary motivator. An astonishing 60% want to be recognized for providing a high quality product or service versus an approximate third who are interested in maximizing profit or growing the business.

The last two years has seen a significant growth (+14%) in the desire to "separate my business life from my personal life," an opinion shared by two-thirds of the small business community. Yet, their business and personal lives are still closely intertwined. Forty percent are willing to sacrifice time with their family in order to get ahead in business. For that reason, the average small business person works 55 hours per week. Twenty percent are working more than 70 hours per week.

And what keeps them up at night? The major concerns are the growing costs of health insurance and benefits (78%), alarm at the state of the US economy (67%), finding and keeping good employees (66%), having enough money to retire (65%), time demands (64%), and safety and security of the business (61%). Sound familiar?