Friday, December 11, 2020

Small Business Study: SMB Facts and Statistics

Starting a small business can be a great way to make money doing something you love.

It can also be a very intimidating experience, to say the least. It certainly doesn’t help that every day we read new headlines about how small businesses are closing due to the economy, the global pandemic, or just regular consumer trends.

Luckily, the vast majority of that noise is BS. In fact, not only is it possible for your small business to thrive, there is a fairly straightforward path to success so long as you have the right systems and the right information.

That’s why we want to help.

We’ve created this comprehensive study of the key small business facts and statistics you need to know. The information here will give you context and insights into what it’s really like to start a small business this year.

Later, we’ll even give you a few resources to help you start a successful business—even if you don’t have an idea yet.

Our Small Business Facts and Information

What is a “small business” anyway?

Before we jump in, it’s worthwhile to define what a small business actually is.

The Small Business Administration (the US government agency that supports small businesses), defines one as:

“Most manufacturing companies with 500 employees or fewer, and most non-manufacturing businesses with average annual receipts under $7.5 million, will qualify as a small business.”

Though we’re primarily going to be looking at U.S. businesses in this article, we’re going to jump around occasionally and take a look into small businesses in other countries as well.

The definition of a small business changes depending on where you are in the world.

In Canada, a small business is a firm with “fewer than 100 employees.” But the European Union defines small businesses as “enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million.”

In China, small businesses are defined as an enterprise with 300 employees or less, and also makes less than 30 million yuan a year.

As you can see, there’s no hard and set definition for what a “small business” is across the world…but we’ll be sticking with the USA definition because that’s where we’re personally based. So, apologies to our international readers out there. But we’ll still jump into some small business facts and statistics that we believe you’ll find very handy.

With that out of the way…

Small Business Growth Statistics and Facts

Small businesses make up the vast majority of all American and European businesses.

Source: Oberlo

Small businesses tend to struggle in the first few years of existence.

Source: Small Business Administration

Most small businesses are sole proprietors (and are operated from home).

Small Business and COVID-19 Statistics and Facts

The global pandemic decimated businesses across the globe, both large and small.

  • When lockdown measures began in spring 2020, 140,104 businesses were marked “temporarily closed” by By fall 2020, 60% of those businesses permanently closed. That’s nearly 98,000 businesses destroyed by the global pandemic (see chart below).

Source: Fortune
  • The United States saw a 20% decrease in new business applications in the spring 2020 when lockdown measures were just kicking off.
  • Business applications dropped differently in various areas of the country. The northeastern

  • United States saw a 31% reduction in business applications. But the western region saw just 15% in reduction.
  • This is the biggest drop in business applications since the Great Recession of 2008-2009.

Source: Economic Innovation Group

Small business revenue dropped off a cliff (among other things).

  • Small business year-over-year revenue fell by 52% in the second quarter of 2020.
  • Payroll fared even worse for small businesses, suffering a 54% drop in Q2.
  • Revenue for LLCs declined 90%.
  • LLCs also saw a 62% drop in employees, as well as a 51% drop in payroll.
  • The restaurant industry suffered some of the worst damage due to the pandemic. The average revenue drop for restaurants was 72%.
  • In a surprising and cruel twist of the knife, they even saw the number of online and takeout orders drop 38%.
  • The average cost of recovery for small businesses is $21,553. This includes things like PPE, as well as renovations related to new COVID-19 safety standards.
  • Recovery costs are higher for restaurants who have to pay $52,106 on average for PPE. That’s 78% more for PPE than your average business.

Minority-owned businesses suffered the most.

Source: Stanford

Things are looking up (kind of).

Source: U.S. Census
  • The United States saw a massive increase in business applications by a jump of 38.5% in October 2020.

Source: U.S. Census
  • That means despite the drop in business applications in the spring, 2020 is on track to be one of the highest years on record for business applications.

Source: Brookings
  • By July 2020, 86% of small businesses said they had either partially or completely reopened.
  • 55% of small businesses report to be in “good health.”
  • The third quarter of 2020 was a boon for the world’s economies. America’s GDP rose by 7.4% (annualized rate of 33%) compared to the previous quarter.
  • The “Euro area” saw 12.7% growth when compared to the previous quarter.
  • That said, lockdown measures slated for Q4 2020 have people fearful about their long-term prospects. In fact, the economic index for locations locked down since late October 2020 indicates that drop could be as bad as it was in springtime. For example, activity in Cardiff, Wales—where lock down measures began on Oct 23—found that economic activity dropped by 20%.

Small Business Demographic Statistics and Facts

Note: The vast majority of studies and statistics gathered about small businesses subscribe to the gender binary. As such, some of the stats and facts that we’ve gathered below could potentially be misleading (e.g. men versus women business owners).

However, we’ll also include information regarding LGBT+ business owners to hopefully give a fuller picture that better reflects the diverse array of business owners out there.

Most small business owners are men—but that’s changing.

Source: UENI

Most small business owners are Gen Xers—but Millennials are catching up.

  • Compared to Millennials, Boomers, and the Silent Generation, Gen-Xers run more small businesses, with 44% of small businesses helmed by the MTV-watching, Joy Division-listening, mixtape-making bunch.
  • They are followed at a close second by Boomers with 41% of small businesses.

Source: Guidant Financial
  • Millennials are the most diverse of all small business owners. In fact, Millennial small business owners are 77% more likely to be Black than their Boomer counterparts.
  • Millennial small business owners also tend to be the happiest with 53% of owners rating their happiness as 9-10 on a 10 point scale of happiness.
  • The average small business owner is 60 years old.

Source: Guidant Financial

Gen Z is primed to take small businesses by storm.

  • While data is predictably scant about Gen Z, there is evidence to suggest that they’ll have a strong foothold in small businesses soon enough. In fact, Upwork reports that half of all Gen Z workers are freelancers.
  • Another report found that 65% of Gen Z wants to be financially independent by age 30.
  • 20% of Gen Zers want to be entrepreneurs after college.

LGBT-owned small businesses are a small but mighty bunch.

  • LGBT-owned small businesses represent less than 1% of small businesses. However, it’s very much worth noting that it’s difficult to get an accurate picture of LGBT-owned anything since many might be reluctant to disclose this information due to the stigma that still persists around it and also the methods of reporting identity might be inadequate (e.g. surveys that don’t ask about orientation and gender identity).
  • LGBT owned small businesses, 67% of them are owned by gay men.
  • 30% of LGBT-owned small businesses are lesbian-owned.
  • 2% of LGBT-owned small businesses are transgender-owned.
  • Almost half of all LGBT-owned businesses are in just five states: California, Florida, Georgia, New York, and Texas. That means there are a lot of opportunities in other states to grow.
  • Despite this, LGBT-owned businesses are strong. In fact, they stick around for an average of 12 years. That blows the doors of small business averages overall.
  • Though there could be a lot of reasons for this, the Harvard Business Review points to the fact that these businesses tend to attract and retain top talent, they have higher business loyalty from customers, and are able to rely on the insights of the LGBT employees.

Most small business owners have at least a high school education.

Source: Guidant Financial
  • This represents a 77% increase in small business owners with an associate degree year over year.
  • One interesting thing about this is that education doesn’t seem to have much of an impact on how profitable a small business is. Though more and more small business owners are getting at least an associate degree, there’s data to suggest that owners of all education levels share the same amount of profitability.

There is a significant racial gap in small businesses.

  • Though Black, Latinx, Asian, and other minority groups comprise 38% of the United States population, they make up just 17.5% of all small business owners.
  • White small business owners are better positioned to survive hard times. Data collected by the JPMorgan Chase Institute showed that the average cash buffer days (the amount of days a business could run if it suddenly stopped making money) for white owners were much bigger than those of Black and Hispanic owners.

Source: JPMorgan Chase Institute

Small Business Marketing Facts and Statistics

More people are shopping online than ever.

  • In 2020, 227.5 million people in the United States will shop online. That’s 69% of the entire population of the country shopping online.
  • That’s slated to boom up to 230.5 million online shoppers by 2021.
  • By the end of 2021, ecommerce sales are expected to balloon to $4.9 trillion. To compare, total online sales were “only” $1.33 trillion in 2014.
  • In Q2 2020, retail ecommerce sales hit $211.5 billion in the United States alone. That’s up from 11.8% in Q1 2020.
  • More people turned to online shopping because of the global pandemic than ever. In fact, data suggests it accelerated the move away from physical shopping by about five years.
  • Because of that, in-person department stores are expected to decline by 60% over all of 2020. Meanwhile ecommerce is projected to grow by almost 20%.

If your company’s website isn’t optimized, you might lose business.

Don’t sleep on social media marketing.

Source: Hootsuite
  • Here’s the breakdown of social media usage in the United States by age:
    • 90% of adults age 18-29 use at least one social media site
    • 82% of adults age 30-49 use at least one social media site
    • 69% of adults age 50-64 use at least one social media site
    • 40% of adults age 65 or older use at least one social media site

Source: Pew
  • Women use social media more often than men. 78% of U.S. women are on social media, compared to 65% of U.S. men.
  • Here is a breakdown of social media usage by income:
    • 78% of U.S. adults who use at least one social media site make $75,000+ a year
    • 83% of U.S. adults who use at least one social media site make $50,000-$74,999 a year
    • 70% of U.S. adults who use at least one social media site make $30,000-$49,999 a year
    • 68% of U.S. adults who use at least one social media site make less than $30,000 a year

Source: Pew

Resources for small businesses

Looking to start a small business?

Maybe you just want to learn how to manage your current business more effectively?

Whatever the case, Quicksprout has all the resources you need to market, build, and optimize your business. You’ll be able to crush goals and generate sales in no time.

Here are a few of our best articles below:

Resources for building successful startups

Resources to enviable marketing

Resources to create a popular website

from Quick Sprout