What Makes A Small Business Small – It’s definitely a small-town one-chair barber shop. But what about a ten-person business that brings in a few million in sales a year?
Or what if ten employees run a multi-hundred million dollar investment firm? Does this still count? How about a manufacturer with several hundred employees? Where is it?
What Makes A Small Business Small
What is considered “small business” is not an academic matter. Different official definitions given by the government affect everything from credit eligibility to tax burden. And what we mean when we use the term informal is also important. After all, simply matching the noun “business” with the adjective “small” is one of the main ways B2B marketers target their audience.
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But do we really know what a “small business” is? Is there a consensus on this topic? And if not, should marketers rely on this term in B2B messaging?
We’ve found that there’s only one way to define a consensus about what a “small business” is. we asked
We surveyed more than 500 respondents and collected the opinions of the public, market experts and business leaders on this issue. The answers to their definition of “small business” may surprise you. They definitely surprised us. In fact, according to our research, only our hair salon sample met the community’s preferred definition of “small business.”
The first numbers to consider are the numbers the government uses to define “small business.” Here’s a quick snapshot of the most important definitions of “small business” put forward by the government:
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To learn more about the different government definitions of “small business” and how they change depending on the situation, see our recent article: “How does the government define ‘small business’?”
It is interesting to observe in general that there is no single definition of power. Therefore, the authority is somewhat conflicted about what constitutes a “small business”. After all, 500 employees is more than 50 people. But what do most people think?
Employee count is one of the most common ways to quantify “how big” an organization is. Therefore, we were interested in how people define “small business” by the number of employees. Here’s what we discovered when we asked, “How many employees do you think a ‘small business’ should have?”
To begin with, it is clear that people do not agree on a single definition of “small business” workers. The responses we received were many.
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It’s worth noting that while the responses varied, we didn’t find much difference in responses between the three different groups we surveyed: the general public, retailers, and executives. In fact, the pattern of response was quite consistent across these groups. [
Although our pollsters defined “small business” in different numbers, they agreed on one thing. The Small Business Administration’s basic definition of 500 employees does not match popular opinion. In fact, 90% of people thought they should own a “small business.”
The Affordable Care Act’s definition of “small business” (50 or fewer employees) was much better than the Small Business Administration standard. Although 50 employees exceeds the average number of user responses in our three response groups, “50” was actually the most common response in two of the three response groups (community and vendors).
Main offer: Despite the wide range of responses, people tend to define “small business” as a business with a very limited number of employees. For the maximum number of employees, the mean responses were 20, 25, and 20 for community, vendors, and managers, respectively.
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In addition to the number of employees, another common way to determine the size of a company is annual sales revenue. We asked. “What do you think ‘small business’ generates the most sales annually?”
In terms of annual sales revenue, we found that survey respondents were given narrow definitions of “small business.” However, we were surprised at how narrow these annual sales definitions are.
About 80% of the general public, for example, set the maximum sales revenue for a “small business” at $1 million or less. When restricting the answer to salespeople, this percentage drops to 70% and for managers, 57%.
Regardless of how we looked at the data, we continued to come to the following conclusion. When it comes to the potential scale of annual sales revenue, the public as a whole seems a little out of touch. We hate to say it. we are, after all, members of society, but that seems like a foregone conclusion. This is what we mean.
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56% of the population believes that “small business” is a maximum of 100 thousand dollars. This seems to us to be a strangely limited definition. Maybe that’s good, though; it’s just a thought, right? But when considering the previously defined average maximum number of 20 “small business” employees, this view becomes strangely confusing.
If you think about the importance of numbers, the math is as follows. A business with $100,000 in annual sales can only pay employees $5,000 a year if they employ 20 people. And that’s only if the company doesn’t incur additional costs and doesn’t make a profit. It just doesn’t add up.
Most of the salespeople and executives who actually showed this interest suggested that the maximum revenue for the business (33% in each group was under $100,000) while still being considered a “small business.”
However, when looking at the full range of answers given by salespeople and managers, the actual answers for maximum annual income are more in line with the reality of what a few dozen people are paid. $9 million in sales is enough, if not enough, to sustain the salaries of a large number of employees in most business models.
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Main means: What is the result of Joe Public’s misunderstanding of the true annual sales volume of a “small business”? We believe that one important insight should be noted. annual sales volume is not a meaningful way to indicate “small business” status for most people. We think we know why too. When does the average person look at an income statement and estimate annual income? For most people, the answer is never. But whoever goes to work can easily look around and count his colleagues. Identifying the number of employees seems to us to be a possible reason that provides a reliable measure when communicating with people about the status of a “small business”.
Interestingly, our conclusion about the unreliability of using “annual sales revenue” to determine “small business” status contradicts the opinions of our survey respondents.
Here is what we asked. “In your opinion, what is the best indicator of the state of “small business”? The choices were: “number of employees” or “annual sales revenue”.
Surprisingly, we found that the general public claimed to be in favor of defining “small business” as the result of “annual sales revenue” by 56% to 44%.
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So, does it make sense to define “small business” by annual sales volume? Maybe. It helps to avoid some of the complexities associated with using employees as the defining indicator. For example, full-time and part-time employees count the same. What about 1099 vs. W-2 employees? How about a volunteer or intern?
In an ideal world, annual sales revenue might actually be a more accurate and consistent way to determine “small business” status. But we think the numbers clearly show that the practice of using annual sales volume as a means of communicating “small business” status is controversial.
Case and point. Remember our example of ten contractors with “several million” sales? We are ready to meet you as a “small business”. But according to
Based on annual sales, we found that most people rate this company as nothing more than a “small business.” In any case, this is the average annual volume of sales of the population of 2.9 million dollars. Hmmm… Call us skeptics, but we’re not ready to endorse that definition. Here’s a bonus observation from the survey results: Asking and agreeing can be two very different things.
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We were surprised to see what percentage of real-world companies fit the “small business” criteria that our research revealed. So we dug into US Census data to find out.
According to the latest US Census data, 89% of the 27.7 million US companies have 19 or fewer companies. 19 is an interesting point in company size to consider, especially given that we learned that 20 is actually the average number for “small businesses” as a measure of number of employees. So. Based on US Census data and our average “small business” number of employees, more than 89% of American businesses are classified as “small businesses.”
Interestingly, while most businesses fit the definition of “small business” with the largest number of employees, these companies represent a relatively low percentage of total sales revenue in the United States. The most recent census figures show that total sales revenue for all US businesses is $30.7 trillion. 89% of American businesses that have