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Small Business Trends as Companies Grow in Size
Executive Summary
April 2010 Download Full Report PDF 1239 KB
According to the U.S. Census, approximately 40,000 companies with more than 100 employees account for roughly half of the U.S. gross domestic product (GDP). The other half of the American economy is generated by 20 million sole-proprietorships and another five million businesses that have between 2 and 99 employees.
The Guardian Life Small Business Research Institute found that stark differences occur in what matters most to small business owners as their companies evolve from very small entities with fewer than ten employees to sizeable enterprises approaching 100 employees that resemble larger corporations. Based on an analysis of its study – The Guardian Life Index: What Matters Most to America’s Small Business Owners – The Institute seeks to better understand businesses with fewer than 100 employees and key small business trends that occur as their employee base increases.
In analyzing the shifting focus, needs and priorities of small business owners, The Institute segmented and defined four types of small businesses based on the number of employees:
- 2-9 employees – The smallest business entity, often consisting of the principal and a small, dedicated support staff. The focus is on “the principal.”
- 10-24 employees – At this small business growth stage, an organizational structure exists but is informal, collaborative and collegial. The focus is on “the business.”
- 25-49 employees – The enterprise is beginning to look like a formal corporation but lacks the resources for rigid departmentalization. The focus is on “the team.”
- 50-99 employees – The business has grown to a size that resembles a larger corporate entity but with fewer resources. The focus is on “the organization.”
A thorough analysis of The Index’s small business research also provides a possible explanation for why many of these companies deliberately remain at their current size for most of their existence. For instance, small business owners often note that operating a business of 99 employees can be less “fun” and less personally rewarding than running a company of 2-9 employees – so “what matters most” to those business owners changes accordingly as the employee base. Therefore, growth for growth’s sake may not always be the number one strategic objective for an owner.
Specifically, as the business grows from 2-9 to 50-99 employees…
- Productivity and efficiency decline
- Smaller organizations typically generate higher revenues per employee than larger organizations (between 100 percent and 400 percent higher, on average) - It increasingly focuses on growth
- Owners of 50-99 employee businesses are more likely to plan an expansion of the business compared to those with 2-9 employees (53 percent vs. 33 percent)
- Smaller organizations struggle with maintaining business as usual (58 percent to 35 percent)
Note: In the above example, per-employee productivity is defined as revenues generated per capita
Intensity ratings
The Guardian Life Index reveals a consistent linear progression among small business owners of increasing feelings of intensity about key issues as the number of employees increases. The research, which uses a proprietary 21-point positive/negative intensity scale (from +10 to -10), generated intensity scores for more than 150 small business issues. In analyzing the 21-point positive/negative scale, experience with more than 25,000 respondents shows that a 0.5 intensity difference between groups is significant.
Presented in the full length, downloadable report are deeper insights, key small business trends and data tables from The Guardian Life Index regarding small business owners’ mindset as employee size increases.