About Small Business Owners
How do you define small business owners? By how many employees they hire? Revenues? Where they do business? Actually, it can include any of these, as well as differences in goals.
For those wishing to become small business owners or those selling to them, knowing the differences is important.
How the SBA Defines "Small Business"
Here is the a technical definition of a small business from the United States Small Business Administration (SBA):
The most widely used, and SBA-endorsed, sizing criteria for small businesses is the following - the business must have no more than 500 employees for most manufacturing and mining industries, and no more than $7 million in average annual receipts for most nonmanufacturing industries.
There are additional classifications as they relate to size, receipts, and industry. However, these are primarily followed when a small business is applying for SBA loans and government contract bidding eligibility.
What's interesting is that about 40 percent of all sales generated in the United States are attributed to firms with less than 500 employees. So they are a major economic engine.
In practical reality, there are two broad categories of small businesses and small business owners:
- Micro, SOHO, and Solopreneur
- Small to Medium Business (or Enterprise)
Micro, SOHO and Solopreneur Businesses
At the very smallest are micro, Small Office/Home Office (SOHO), and solopreneur (an entrepreneurship consisting of only one person) businesses. A shocking fact is that about three-quarters of all U.S. businesses are nonemployer firms with no employees (SBA.gov, 12/22/2017)! However, in spite of their numbers, they only generate just over 3 percent of all sales in the United States.
These businesses would be identified by:
- Size. Many consist of only one person! Help, if it is even hired, is often part-time or even contract workers.
- Location. As the SOHO name suggests, many of these businesses are run from homes. Others may have small offices or retail locations. Office suite arrangements (paying a fee for use of an office location not permanently occupied) are popular so that they can meet with clients in a professional setting. Some just go to restaurants and office centers to meet customers or to work.
- Revenues. On the revenue scale, their income could be not much more than that of a full-time worker, sometimes even less. Conversely, some could also realize significant revenues due to lower overhead and no payroll.
- What Makes Them Tick. Some of these businesses are started for the love of the business, following a "do what you love, the money will follow" philosophy. While often not the wisest of things to do in business (reading the books The E-Myth and The Entrepreneur Equation explain why), these small business owners may not even pay attention to financials and other business metrics. Usually not "empire builders," they value freedom and flexibility to run a business on their terms.
- Tips for Selling to Them. Most micro, SOHO, and solopreneur business owners have a high personal investment in their companies. So every dollar is coming out of their own pockets. Resistance to part with personal cash may make them difficult to close. Also they are often attracted to DIY (do it yourself) strategies and seek flexibility (no contracts, no penalties for cancellations, easy returns, etc.). Part of this is "I'd rather do it myself" attitude stems from their necessity to wear many functional hats within a one-person operation. Showing them how your offering can help them keep flying solo in their businesses can help them buy in.
Small to Medium Businesses (SMB)
According to the U.S. Census Bureau, small businesses are firms that have up to 499 employees (a large business is classified as any business with 500+ employees). More recently, this category of business has been referred to as "Small to Medium Businesses," or SMBs.
These businesses would be identified by these demographic factors:
- Size. Can have anywhere from one to 499 employees.
- Location. Although they can be located in homes, it is more likely that SMBs have specific business locations and/or conduct business outside the home. Some may have large or multiple facilities and offices.
- Revenues. As noted earlier, SMBs account for approximately 37 percent of total sales in the United States (2007 Census data). However, revenues per business can vary widely, depending on the type of business, location, number of employees, management capability, and many other factors.
- What Makes Them Tick. Some SMBs may start out as micro-businesses which grow to a point where employees and capital investments are needed. Family businesses are common in the SMB category. Some SMBs may be large operations, requiring teams of people. But this large group usually diverges onto two different paths: 1) Those that want to stay small enough so owners can retain control while still growing revenues and profits; and, 2) Those for whom SMB status is just a point on the path to building a larger enterprise or empire.
- Tips for Selling to Them. Small business owners on the first path want to know how this or that offering will help them gain or retain more cash with minimal investment. Some of them, especially family businesses, may have a large personal investment in the operation and may exhibit the attitudes of micro-small business owners, particularly if the business started that way. Conversely, owners on the second path to enterprise greatness want to see how an investment in an asset, personnel, products or services will help get them to the next level. Salespeople need to watch for clues to properly put a prospect in one camp or the other.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2013 Heidi Thorne