More on Small Business Owners and Risk

I posted last week on survey data showing that small business owners feel they have more job security than they would if they worked for someone else.  My post was part of a broader thread on entrepreneurs and risk started by John Tozzi.

I recently saw some additional survey data on this topic.

Network Solutions, as part of their broader Small Business Success Index project, asked small business owners of firms with less than 100 employees how successful they were at minimizing business risk.  The survey question used a 10 point scale where 10 meant completely successful and 0 meant not at all successful.

The results for this question are:

• 19% responded 10
• 63% responded 7 or higher
• 88% responded 5 or higher
• Only 7% responded less than 5 (5% didn't know or didn't answer)

Despite the deep recession, the vast majority of small business owners clearly believe they are very good at managing risk.

Disclosure:  Emergent Research has worked with Network Solutions in the past year.    

Comments

[Bill Attinger]

The corollary hypothesis here is whether the 19% who believe they are minimizing business risk are better entrepreneurs than the lower part of the curve. Good entrepreneurs, I believe, are better at not only managing business risk, but first being able to identify it or even making it a priority to identify and manage it. I've met many entrepreneurs who essentially ignore this need, sadly. Versus a larger company, it can be much easier to manage business risk as a smaller company is much more nimble in many ways. For example, if a small business needs to quickly lay off 10% of their work force to survive, it means less people terminated versus a large organization. Having said that, I'd be interested in statistics that show ratios of revenue per FTE and cost per FTE between small and large organizations; there are many ratios like this that might shed some empirical light on this subject. One point against a small business is that their revenue mix might be more concentrated (i.e. one large customer accounts for bulk of company revenues), which requires a conscious effort by the entrepreneur to avoid adverse effects of abruptly losing such a customer; larger organizations are often less dependent on such a customer portfolio and might weather the loss a bit more smoothly.

John Tozzi has helped provoke solid discussion around this topic - one that gets talked about, IMO, more than it gets addressed on a daily basis within many businesses.

[Personal Concierge]

I gave it 8 points. I think Small Business Owners can manage risk better.

[Team The Rise To The Top]

7% seems like such a small number, I know that there are ways for small business owners to manage risk but I feel like there are more businesses out there feeling the effects of the recession than this survey conveys. Thanks for posting this though, interesting numbers!

[Steve King]

Bill: Interesting points. I'm not aware of studies that look at actual risk levels versus how the small busines owner perceives risk. It is an interesting topic.

Failure rates, on average, are higher for small businesses than larger firms so it appears they are more risky in some absolute sense.

But large firms don't get large unless they are also successful - so this relationship is not clear.

I wasn't surprised by the results. Like Personal Concierge, small business owners are a confident group.

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