The nature and evolution of entrepreneurially driven American small businesses

Big Red Car here.  Well we woke up this morning to a cold, crisp, clear day — Sequestration + 1.  S Day!

Hell, I can’t detect anything different yet.  You?

We still have no viable plan to create jobs in America.

Everybody acknowledges that “small business” is the engine of job creation.  I guess that’s right.  Right?

So The Boss had done some research on small business and jobs and I stole it.  Haha, you are a real wag, Big Red Car!  Oh my, it’s so much to be a Big Red Car.  Of course, I have a freakin’ job.

Look at this chart — made by me on The Boss’s computer last night while the Old Boy was sleeping.

Small business success table <<< link

As you can see, we have the following characteristics in the small business universe.

1.  Solo entrepreneur companies;

2.  Collaborative enterprises;

3.  Steady enterprises;

4.  Sustainable enterprises;

5.  Professional managed enterprises;

6.  Mature enterprises; and,

7.  Corporate successes.

In all we have about 27 million companies which fall in to these categories.  I see different numbers from 25 million to 30 million but 27 million seems reasonable.  The categories are not perfectly defined but there is a consistent yardstick of revenues, employees and functions that helps us to define the universe.

Solo entrepreneur enterprises

Annual sales:  up to $100,000
Employees:  1
Number of such companies:  22,000,000
Percentage of all small businesses: 82%

The solo entrepreneur is the entry level position of the small business ecosphere — really stupid word, no?  Here the entrepreneur is doing………………….everything.  This is where the journey begins.  One person, one set of responsibilities.

Collaborative enterprise

Annual sales:  up to $300,000
Employees:  2 – 3
Number of such companies:  1,700,000
Percentage of all small businesses:  6%

So now the entrepreneur has taken in a partner or a couple of employees.  Still a very small company but just starting to get out of the cradle.  With the additional assistance, the entrepreneur can get out and really sell.  The big add?  More sales efforts.  A growth opportunity to be sure.

Steady operations

Annual sales:  up to $1,000,000
Employees:  4 – 10
Number of such companies:  1,900,000
Percentage of all small businesses:  7%

This is still a fledgling operation but you have what the big boys like to call “proof of concept” because you are generating $1,000,000 in annual sales.  Sales evolves into marketing.  You are still a small business which is unlikely to survive the founders given any real angst.

Sustainable operations

Annual sales:  up to $5,000,000
Employees:  11 – 25
Number of such companies:  900,000
Percentage of all small businesses:  3%

You are now a local success story and your business will likely survive the entrepreneur’s personal involvement.  Oddly enough this is the point at which the strength of the entrepreneur’s vision is of the greatest importance.  The entrepreneur can still impact every employee but the necessity to effectively delegate means the entrepreneur cannot be in every meeting.  Vision, it’s very important.

Professionally managed

Annual sales:  up to $20,000,000
Employees:  26 – 100
Number of such companies:  200,000
Percentage of all small businesses:  1%

You are now a regional business or a very, very successful local business.  You are a fairly well known brand.  You have had to inject some real structure into the company and it is going to survive the founders.

You likely have external shareholders and professional managers.  Perhaps the entrepreneur has had to step back and allow professional managers execute his vision for the company.  This is an enterprise that can be sold to a third party and has the financial strength to weather the storm.  You may be gobbling up a few competitors and you have a professional — or access to a professional — in every management discipline.

You are now big enough that you may be attracting some focus from the competition and your agility will become important.

You, my friend, are a player.

Mature company

Annual sales:  up to $40,000,000
Employees:  101 – 200
Number of such companies:  60,000
Percentage of all small businesses: 0.22%

You are a leader in your industry and your planning is now “strategic” rather than tactical.  You are a bit less entrepreneurial and your vision must be updated because it now applies to a “big” organization.  Your interest in the company is very valuable and represents a significant amount of personal wealth.  It is time for you to be thinking about how  you are going to liquidate this wealth and get it into your estate and family.

The company has a winning culture and the culture may be the key driver in the company’s future.  This culture is your legacy.

Mature companies have to guard against becoming a bit complacent.  You have to be aware that your formerly spry little, agile company has to get an annual physical like you are in the danger zone.  You may be shooting scratch golf but check the vitals from time to time.

Corporate success

Annual sales:  $100,000,000
Employees:  500
Number of such companies:  30,000
Percentage of all such businesses: 0.11%

You have created a company which is one of the top companies ever — less than 0.1%.  Your sales are substantial and while you personally may be getting ready to enjoy the fruits of your labor, the truth of the matter is that your fabulous company — culture and all — is now ready to be re-energized and has the size, experience, marketshare and wherewithal to become something very, very special.

The question is no longer is the company well managed but rather is it well lead?  And, absent your personal involvement, who is going to provide that visionary leadership that you have provided?

Who?

Well, Hell, don’t ask me, I’m just a Big Red Car!

 

  • http://wmougayar.com/ William Mougayar

    I like that chart & have never seen this segmentation before. 2 thoughts come to mind:
    - I’d like to see the # of people employed for each segment. Do you know if it’s available?
    - if 1/4 of the solo’s hired 1 more unemployed person, that would take care of 5 million jobs. Imagine the impact.

    • http://www.themusingsofthebigredcar.com/ JLM

      .
      The source data for this article is very solid but unfortunately there is no further info available. I also suspect that this data is summarized in a manner that makes a few assumptions.

      I always see a number of 28MM small businesses in the US but this info adds up to just less than 27MM — clsoe enough for government work?

      BRC
      .

  • http://www.pointsandfigures.com pointsnfigures

    What does this mean for a company like Groupon that had explosive success and transitioned from one form to another in the blink of an eye? Ignore the thoughts about their business model, revenue model etc. It seems $GRPN is an extreme case (kind of like economics and the study of perfectly inelastic markets, or perfectly competitive markets)

    • http://www.themusingsofthebigredcar.com/ JLM

      .
      Well, the short answer is that Groupon — one of the biggest head fakes in history — ceased to be a “small company” some considerable period of time ago.

      The purpose of the blog post was to provide a framework that is applicable to the largest segment of the economy which can fairly be categorized as “small” and whose development follows some orderly sense of growth in revenues, employees and complexity.

      Groupon, Instagram and a slew of others spin beyond the constraints of this discussion and thus the discussion itself is not adequate to explain that phenomenon.

      The Big Red Car does not know everything and is limited by its small body of experience and knowledge. But the BRC is learning.

      The Groupon phenomenon — hyper growth and hyper value ? — is not only an outlier, it is a freakin’ miracle.

      BRC