Small Business Labs

Exports Driving US Economic Growth

The revised 2nd quarter GDP numbers are in for the US economy and they are quite positive.  The Commerce Department reported that Q2 GDP growth was revised to 3.3% versus the initial estimate of 1.9%.  The major driver of this group was exports, which grew a revised 13.2% in Q2 versus an original estimate of 9.2%.  This, coupled with a decline in imports, resulted in almost all the quarter's GDP growth.

While weakness in the dollar has helped, longer term trends are driving the growth of exports.  These include:

• falling global trade barriers - both hard and soft
• the global growth of connective technologies and the Internet
• the strong growth of emerging market economies
• growing US company focus on exports

These long term trends will continue to drive US export opportunities over the next decade for both large and small businesses.

Trash Opportunities

Talking Trash is a great article from Foreign Policy magazine covering trash statistics.  According to the article the world throws away roughly 2 billion tons of garbage every year and the average high income country resident generates 3.1 pounds of garbage per day.  That's a lot of trash.

The good news is recycling rates are at historic highs.  Interestingly enough low income countries tend to do a pretty good job of recycling because they have so many low income people collecting and recycling trash to eke out a living - 500,000 in Brazil alone.  But as the chart below from the article shows (FP has great charts), there is still lots of room for improvement in the US.

The other good news is trash can be turned into ethanol.  Bizarre Biofuels, another FP article, discusses that state of garbage to ethanol conversion and points out that during the last year several trash-to-ethanol plants have been approved in the US and Canada.

There are many examples of successful small recycling businesses in the US.  Over the coming months we will be profiling some of the participants in this growing sector of the economy. 

Book Review - Bounce by Barry Moltz

I was reading a recent post by Anita Campbell in her new Small Business Success Center that discussed the book Bounce.  The post is about confidence and failure and led me to read the book. 

Bounce is an interesting and different book because of it focuses on business failure.  Entrepreneur Barry Moltz discusses his failures as well as the failure of others and points out that success and failure both are normal aspects of business life.  He describes Bounce as: 

"...the process of bounding back, of moving forward, falling back, and shooting ahead again, and through all that, building up and then drawing on personal reserves of energy."

Two points in the book jumped out at me.  The first is failure sometimes happens no matter how good someone is or how prepared they are.   

I think this lesson is especially important in times of economic difficulty.  The next year will see many small businesses fail due to the economy.  And some of these will be extremely well run firms that fail for reasons beyond the control of the entrepreneur.

Another interesting point Moltz makes is that luck often plays a major role in success.  As a long time tech industry participant, I've seen this happen many times.  I've also personally benefited from business luck.

As Moltz describes the key is to maintain confidence in failure, humility in success and to move forward intelligently in either case.   

 

The New York Media Loves Small Farms

There must be a real yearning in the city of New York for a return to the land, because the New York media seems to do an article on small farms almost every week.  Niche Farming Offers Way Back to the Land from the NY Times focuses on the increasing demand for niche food like artisanal cheese and truffles.  It offers advice on starting a niche farm but warns that while starting a small farm may sound like fun, profits are not easy to come by. 

But profit isn't the only reason to start a small farm, you can do it for the fame.  New York Magazine has an article describing small farmers as the new cult heros.  It discusses how New York foodies increasingly want to know what farm their food comes from, who the farmer is and how the food is grown.  Key quote:

"So New Yorkers are now beginning to fetishize farmers the way we once did chefs. Some of us make ritual trips to buy our wares at the Greenmarket, nod with recognition when our favorites are name-checked on menus, and turn out to hear them speak when they make meet-the-farmer appearances in town."

I grew up in a small farm town.  I would have never guessed the day would come when New Yorkers would "fetishize" farmers. 

O'Reilly's Key Trends

The O'Reilly Radar blog is doing a series of posts on the key trends they are following.  Being a technology oriented group, the trends are heavily weighted towards tech and are grouped in the following categories:

• Bio
• Real World
• Web
• People
• Hardware
• Strenght in Numbers

Each category consists of 2-4 trends and each trend (they call them themes) has an associated blog post.  The page is being updated as new trend descriptions are being posted.  The descriptions are quite interesting and well worth reading. 

New Economic Gardening Website

Economic Gardening Economies is a new website dedicated to economic gardening.  Economic gardening is is a local or regional economic development strategy that focuses on supporting local entrepreneurs and small businesses instead of "economic hunting" - attempting to attract new businesses from outside the area.  The idea was developed in Littleton, Colorado (they have a great description of economic gardening on their website) in the late 1980s and has since spread to many communities across the US.

The website is a combination wiki/group blog that is being used as repository of information and cases studies on the topic.  There is also an Economic Gardening Google Group.

I heard about this from the EDpro blog.   

Personal Business Statistics

There are over 20 million personal businesses in the US.  These are called "nonemployer firms" by the US Census and they consist of self-employed, freelancers, contractors, and other solo businesses.  A new research report sponsored by the SBA covers some key statistics on these businesses.  The data is from 2002, which is when the most recent Survey of Business Owners was conducted.

The chart below is taken from the data in the report and shows the number of personal businesses by revenue categories.  As you can see, most personal businesses are small.  According to the report, the median personal business in 2002 had just over $10,000 in revenue and the average was $47,000.

This study used the Survey of Business Owners data which counts anyone reporting $1,000 or more in schedule C income as owning a nonemployer business.  This means part-time and hobby businesses are included.  There are also a lot of full time personal businesses.  As the chart shows, there were roughly 3.5 million personal businesses with over $50,000 in revenue in 2002. 

The report contains a some other interesting data points on personal businesses

• The number of personal businesses grew at roughly twice the rate as employer businesses during the study period, 1992-2005 
• 61% of personal businesses were home-based.
• 16.3% of personal businesses were owned by people under the age of 35.
• 38.7% of personal businesses were owned by women versus 27% of the employer businesses.   

 

European Small Business Statistics

We've been getting quite a few questions lately about the number of small businesses in the European Union (EU).  The quick answer is 25 million.  Also, European SMEs employ roughly 95 million Europeans (53% of the EU's workforce) and generate about half of the EU's private industry sales.

Read on for the longer answer.

The EU defines small businesses slightly differently than the US SBA does.  Their categories are:

• Small and medium sized businesses have less than 250 employees and less than 50 million euros in annual turnover (sales). 
• Small businesses have less than 50 employees and less than 10 million euros in annual turnover.
• Micro businesses have less than 10 employees and less than 2 million euros in annual turnover.

If a company exceeds a limit, it is counted in the next higher bracket,  For example, if a company has 4 employees and 5 million euros in turnover, it is counted as a small business not a micro business. 

The US SBA defines small and medium sized businesses as having less than 500 employees.  The SBA does not use sales in their definition. 

According to the European Commission there are 25 million small and medium sized businesses in the EU and they employ 95 million Europeans.   This is roughly 53% of the EU's workforce.  Over 90% of these businesses are micro businesses and the average company in Europe has 5 employees.

For more information on small business in Europe and EU small business policies, see the European Commission's SME portal. 

 

Defining Small Business Success

We recently had an interesting set of discussions on the definition of small business success.  In our conversations with a mix of entrepreneurs, we quickly learned that almost all them defined success as meeting their personal objectives for their business.  No great surprise here, but what is interesting was how broad the range of business objectives were.  Because of this, we heard many different definitions of success.

Among the entrepreneurs we talked to success metrics were mostly defined by the type of business the entrepreneur started, and we found most fell into one of three categories:

1.  Return businesses:  these are businesses that were started primarily for traditional financial purposes.  The objectives of these businesses focused on creating a strong enough revenue and income stream to support the lifestyle objectives of the owner. 

One of the interesting things we found was that very few of the entrepreneurs we talked to had an objective of growing their small business into a medium or large business.  Most felt their businesses weren't capable of becoming big, or they believed it wouldn't be worth the effort to get big.

This is consistent with other research we've done.  Simply put, most small business owners aren't motivated or interested in growing their firms into big businesses.   

2.  Passion businesses:  quite a few entrepreneurs talk about their small businesses existing to allow them to pursue their passions.  The main passions mentioned in our recent discussions were creativity and social causes, both broadly defined.  "Doing well pursuing my passion" and "doing well by doing good" were the main themes for these types of businesses.

Again, few in the passion category had as an objective getting bigger.  This group is thrilled to be pursuing their passion and earning enough to support themselves.

3.  Lifestyle businesses: many personal businesses are lifestyle businesses and their owner's objectives tend to be creating a flexible work environment so there is time for other pursuits.  Almost by definition, lifestyle business owners have little interest in growth.

Obviously, many businesses fall into more than one category.  But in most cases there seems to be a primary set of business objectives that fall into one of the three categories.

These discussions once again reminded us there are no easy ways to segment the small business market.   

Shipping 2.0

bMighty has an article on small business warehouse and shipping outsourcing firm Shipwire.  The story discusses how Doggypads, a supplier of a dog housebreaking pads, outsources all their shipping and warehousing to Shipwire. 

Shipwire is another example of how outsource services enable small businesses by:

1.  providing small businesses access to facilities and capabilities they could not afford on their own.

2.  allowing small businesses to scale up and down based on demand.

3.  turning fixed costs into variable costs, cutting capital requirements and business risk.

We discuss this topic in more detail in our research report The New Artisan Economy.