January 15, 2021
January 15, 2021
Startups are not without their challenges. From seeking capital and keeping afloat, to hiring the right people – it’s paramount to understand what makes a small business succeed. Take a look at some of the latest trends and small business statistics. They should help to understand the landscape and prepare you to create your own successful business.
This is a compilation of the most interesting statistics about US small businesses:
Here are some fascinating numbers about the current small business landscape in the US.
The definition of a small business in the US is determined by the Small Business Administration’s (SBA) standard. It’s based on the number of employees or the average annual receipts, but most ventures are defined as small businesses if they employ 500 employees or less.
A micro business, on the other hand, is a subcategory of small business. They have ten or fewer workers — including the owner — and generate less than $250,000 a year.
Small businesses have a large impact on the US economy. It sparks innovation, contributes to the GDP, and provides employment opportunities — especially for women and minority groups.
Small business owners desire a better life for themselves and are more ready to create opportunities than wait for one to appear. Other top reasons for starting a business include pursuing a passion (39%), and dissatisfaction with corporate USA (25%).
Only 1 in 12 businesses close down in the first year of operations, but the survival rate decreases as the years go by. Cash flow is cited as one of the main reasons for small business failure, so new companies should have financial projections for at least five years.
Trucking, organic farming, and fertilizer companies have the best survival rate compared to any other industry in the US. This could be due to a larger government budget dedicated to these industries.
With the rise of technology and social media, it has become much easier to launch a business, making the market more saturated.
For businesses to survive, careful market research should be conducted to better understand what the target market lacks and what value the business can offer to fill the gap.
Business services refer to work that supports other businesses and organizations. Popular options are consulting, training, marketing, and computing.
Other top industries for small businesses include food and restaurant, retail, health, beauty, and fitness industry.
While small businesses are among the hardest hit by the Covid-19 pandemic, 57% of owners and managers report that they remain optimistic about their future. Many owners report adapting to internet tools to continue work processes and engage with their customers.
Some benefits of home-based work include decreased commuting time and having more control over taxes and expenses. These businesses are also more likely to adapt during the pandemic, where most employees are forced to work from home.
Running a small business is challenging but beneficial for the economy, especially through employment and job creation. Here are a number of small business statistics about SMBs and their employees.
Around 1.5 million jobs are created per year through small businesses. Although the current global political and economic climate is uncertain, business owners remain confident and optimistic.
Successful businesses have one thing in common: they solve some type of problem. This way, they’ll know who their target audience is and how they can scale their business.
To avoid failure, small business owners must ensure the product they offer has a place in the market.
This phenomenon is caused by several factors: a low volume of applicants for each advertised job (55.3%), high staff turnover (15.2%), and a lack of recruiting budget (15.2%).
Small businesses account for 74.8% of all employers in the private sector, but they only provide 10.3% of jobs. Meanwhile, the small business industries with the highest employment are agriculture, forestry, and fishing at 31%.
This type of business is known as a sole proprietorship. Examples include self-employed gig economy workers such as ride-sharing drivers, digital assistants, and various freelancers.
The industries with the highest percentage of family-owned businesses include management companies, real estate, rental, leasing, as well as accommodation and food services.
Minority-owned businesses largely occupy the accommodation and food services industry, health care and social assistance sector, as well as retail trade.
From 2014 to 2016, businesses owned by Hispanic groups have the highest growth rate at 13.1%. They are followed by African-American (12%), Native Hawaiian and Other Pacific Islanders (9.7%), Asian (9.6%), and American Indian and Alaska Native (8.7%).
Other advantages of working from home include improved work-life balance, decreased stress from commuting, and fewer distractions from office politics and unnecessary meetings.
How much does it cost to start a business? Below are some recent small business statistics regarding financing.
The number varies depending on the industry. For instance, most high-tech companies would need an average of $80,000 as startup capital.
One-third of successful small businesses can start with $5,000 or less. Around 77% of this is financed through personal savings. Sara Blakely founded the shapewear giant Spanx with just $5,000 and it has now grown into a billion-dollar business.
How much capital you need depends on the industry and your product offering, but many homegrown micro-businesses can start with $3,000 or less.
This figure is taken from the latest Small Business Administration statistics in 2016. Meanwhile, small business owners who work at their unincorporated firms have a median income of $23,060.
The income for the average small business owner is slightly higher than self-employed workers. However, SBA states that the average salary varies depending on the state, cost of living, and state economic conditions.
Positive cash flow per month is crucial to business survival. It indicates that a company’s liquid assets are growing, meaning it is able to settle debts, pay expenses, and reinvest back into the business. It’s important to conduct a cash flow analysis before starting your business.
The average seed round when raising venture capital is $2.2 million. However, it is important to remember that raising venture capital is not the norm. Most entrepreneurs fund their own businesses through personal finances or family and friends.
The average age has increased by 41% from 1.22 years in 2018. This means that most startups try to establish themselves first before getting into venture capital.
Having two partners indicates balance and well-roundedness for investors. Moreover, the partners can complement each other in skills, responsibilities, creativity, and managing risks.
A majority of small businesses either break-even (30%) or lose money (30%). Meanwhile, it usually takes 2 to 3 years for most businesses to be profitable.
According to the latest statistics about entrepreneurs, more and more new business owners are breaking the million-dollar threshold. However, the study also reveals that most businesses generate less than $10,000 a year.
Marketing and eCommerce are all part of running a successful business. Here are some small business statistics on marketing.
Social media is the most popular method to advertise due to its ability to reach the target market, whereas traditional marketing methods tend to reach a broader audience.
Around 92-95% of millennials and Gen-X are 70% more likely to advertise than baby boomers. Young business owners recognize the importance of appealing directly to customers since most markets are already saturated.
Of over 300 business owners surveyed, 86% reported that Facebook was the most important social media platform to help with brand awareness and customer engagement. The platform is closely followed by YouTube at 51% and Instagram at 47%.
The survey reveals that 45% of small businesses use PPC, with Google Ads as the most popular option. On average, SMB owners spend $9,000 to $45,000 on Google Ads per month.
About 95% of 18 to 34-year-olds follow brands they see on social network sites. If your business targets customers in this age range, it’s paramount to have an active social media presence.
49% of consumers use influencer recommendations before making a purchase, and 70% of teens are more likely to trust an influencer than a celebrity. This marketing strategy is so effective that 40% of customers had bought a product after seeing it on Instagram, Twitter, or Youtube.
Try incorporating animations, illustrations, or videos into your social media strategy for higher engagement. Posts with images generate 180% more engagement and have 94% more views than those without any images.
Potential customers will read reviews left by other customers, visit your online store site, and check your socials before making a purchase. So ensure feedback left from customers is replied to, social media is active, and your website is up to date.
Out of those that don’t have a website, 28% claimed they wouldn’t create one in the future — with cost and irrelevance to the industry as the main reasons.
In contrast, only 6% of businesses put their efforts into retaining existing customers and improving search engine optimization (SEO). This is unfortunate as both are equally important in order to boost sales.
Now let’s take a look at small business statistics about SMB owners’ population in the US.
Finance, insurance, and real estate have the oldest average age at 54.1. Construction business owners are the youngest with an average of 48.3.
With more access to information and a plethora of apps and tools available to create a side-hustle, younger people are more determined to be financially independent and pursue their passions.
This number can be divided further into four groups: associate (31%), bachelor (17%), master (18%), and doctorate (4%).
Although the world is seeing more women-owned businesses than ever before, male business owners are still making more money on average ($42,000 to $96,000 annually). Meanwhile, female business owners make about $31,000 to $71,000 per year.
Self-disciple is followed by communication skills (33%). However, it’s interesting to see different responses from male and female correspondents.
The top characteristics for male owners are self-discipline, passion and drive, and market knowledge. Meanwhile, female owners put communication skills at the top, followed by self-discipline and money management skills.
It’s no secret that we’re living in unprecedented times. However, as with any challenge, it’s all about how businesses adapt to the situation. Airbnb, the travel giant, has temporarily shifted their accommodation-centric business into a virtual experiences business to stay afloat.
The small business landscape is highly competitive, with new players emerging every year. However, this shouldn’t stop you from starting one. Use the small business statistics above to study your opportunities and plan your finance and strategy.