A rundown on key facts, numbers and trends regarding entrepreneurship and small business
American Business is Overwhelmingly Small Business
Based on data from the U.S. Census Bureau, there were 6.1 million employer firms in the United States in 2019 (latest data).
● Firms with fewer than 500 employees accounted for 99.7% of those businesses.
● Firms with fewer than 100 employees accounted for 98.1%.
● Firms with fewer than 20 employees made up 89.0%.
● Firms with fewer than 10 employees accounted for 78.5%.
When nonemployer businesses are taken into account – there were 26.5 million in 2018 (latest data) – the share of U.S. businesses with fewer than 20 workers increases to 98.0% and the share with fewer than 10 employees registers 96.0%.
Out of approximately 32.6 million businesses in the U.S., only 20,868 had 500 or more employees. America’s economy is a small business economy.
C-Corps: Among employer C corporations in 2018 (latest data):
● 72.5% had fewer than 10 employees
● 84.7% had fewer than 20 employees
● 96.2% fewer than 100
● 98.9% had less than 500 workers.
When nonemployer corporations are taken into account (latest data 2018), firms with fewer than 20 workers represent 89.3% of all C corporations, and the share with fewer than 10 employees registers 80.8%.
Bulk of Job Creation Comes from Small Business
According to the SBA’s Office of Advocacy:
● “Small businesses have accounted for 62% of net new job creation since 1995. (See the Office of Advocacy’s “Frequently Asked Questions” publication.)
● “From 2000-2019, small businesses generated about two-thirds of net new jobs. Volatility from the 2020 recession altered long term trends.”
● Small businesses employ 46.8% of private-sector employees.
Also, as noted in SBA’s “2020 Small Business Profile”:
● Small businesses created 1.6 million net new jobs in 2019, with firms employing fewer than 20 workers generating 1.1 million net new jobs.
Small Business Share of Employment
According to data from the U.S. Census Bureau:
● Employer firms with fewer than 500 workers employed 46.4% of private sector payrolls in 2018.
● Employer firms with fewer than 100 workers employed 32.4%.
● Employer firms with less than 20 workers employed 16.0%.
The Small Business Share of GDP
According to a study published by the SBA’s Office of Advocacy:
“In the 16 years from 1998 to 2014, the small business share of GDP fell from 48.0% to 43.5%. The declining small business share of GDP was not, however, due to a decline in the level of SGDP [i.e., portion of GDP produced by small business].”
As for why the small business portion declined, it is explained:
“Rising SGDP implies that the decline in the small business share of GDP is attributable to faster growth among large businesses. Specifically, after adjusting for inflation, real GDP for large businesses grew at 2.5% annually versus only 1.4% annually for small businesses.”
New Business Applications
The U.S. Census Bureau publishes data on new business applications – that is, “business applications for tax IDs as indicated by applications for an Employer Identification Number (EIN) through filings of IRS Form SS-4” – dating back to July 2004. These numbers are not actual business formations, but instead, a measure of individuals filing for tax ID numbers. From this data, projections regarding actual future business formations are made.
With the onset of the pandemic in 2020, one of the most encouraging and surprising results was the dramatic leap up in terms of business applications. This is encouraging for future growth in entrepreneurship, which is vital to economic recovery and growth.
Total Business Applications Reached Record Levels: As noted in the following two charts, total business applications and high-propensity business applications (that is, businesses most likely to have payrolls) both registered record levels in 2021, with total business applications registering 5.4 million and high-propensity applications coming in at 1.8 million.
Source: Federal Reserve Bank of St. Louis, FRED
Source: Federal Reserve Bank of St. Louis, FRED
Small Business and Innovation
The SBA’s Office of Advocacy notes:
“Small businesses represent about 96% of employer firms in high-patenting manufacturing industries, a percentage that remained constant from 2007 to 2012. However, during the same time period, small businesses’ share of employment, payroll, and receipts increased. This increase was particularly notable in firms that manufactured computers and peripheral equipment, communications equipment, or semiconductors and other electronic components.”
In addition, a 2008 study by Anthony Breitzman and Diana Hicks for the Office of Advocacy(“An Analysis of Small Business Patents by Industry and Firm Size”)found that “small firms are much more likely to develop emerging technologies than are large firms. This is perhaps intuitively reasonable given theories on small firms effecting technological change, but the quantitative data here support this assertion. Specifically, although small firms account for only 8 percent of patents granted, they account for 24 percent of the patents in the top 100 emerging clusters.”
See the Office of Advocacy’s“Frequently Asked Questions” publication.
See“An Analysis of Small Business Patents by Industry and Firm Size” here.
In a 2013 study (“Product Innovations by Young and Small Firms”) for the SBA’s Office of Advocacy, it was found that smaller and younger firms tend to produce greater innovations. It was noted:
“The author generated patent citations per dollar of research and development stock for firms of varying sizes and ages. The results for small vs. large firms and young vs. old firms were similar. Small firms averaged 1.2626 patent citations per million dollars of R&D stock versus 0.5712 for large firms. Young firms averaged 1.2117 patent citations per million dollars of R&D stock, while old firms averaged 0.5344.
“Narrowing the study focus to young small firms showed them to be highly productive innovators. Firms below the median size (290 employees) and age (18 years) averaged more patent citations per million dollars of R&D stock than old large firms, 1.7535 versus 0.3424, respectively.”
Small Business and Global Trade
Based on data from the latest report from the U.S. Census Bureau, we see the following about the roles small and mid-size businesses played in international trade – overall and with the top three U.S. trading partners (Canada, Mexico and China) – in 2019.
Exporting
• Among all identified U.S. exporting firms, 76.3% had fewer than 20 employees, 86.3% fewer than 50 employees, 91.4% fewer than 100 employees, and 97.4% fewer than 500 employees.
• Among all identified U.S. exporting manufacturing firms, 56.5% had fewer than 20 employees, 74.1% fewer than 50 employees, 84.3% fewer than 100 employees, and 96.1% fewer than 500 employees.
• Among all identified U.S. firms exporting to Canada, 61.7% had fewer than 20 employees, 76.1% fewer than 50 employees, 84.1% fewer than 100 employees, and 94.5% fewer than 500 employees.
• Among all identified U.S. firms exporting to Mexico, 57.9% had fewer than 20 employees, 71.7% fewer than 50 employees, 80.3% fewer than 100 employees, and 92.9% fewer than 500 employees.
• Among all identified U.S. firms exporting to China, 53.0% had fewer than 20 employees, 67.6% fewer than 50 employees, 77.2% fewer than 100 employees, and 91.3% fewer than 500 employees.
Importing
• Among all identified U.S. importing firms, 76.7% had fewer than 20 employees, 86.4% fewer than 50 employees, 91.3% fewer than 100 employees, and 97.3% fewer than 500 employees.
• Among all identified U.S. importing manufacturing firms, 49.5% had fewer than 20 employees, 66.1% fewer than 50 employees, 77.5% fewer than 100 employees, and 93.7% fewer than 500 employees.
• Among all identified U.S. firms importing from Canada, 43.6% had fewer than 20 employees, 55.5% fewer than 50 employees, 64.9% fewer than 100 employees, and 83.0% fewer than 500 employees.
• Among all identified U.S. firms importing from Mexico, 58.6% had fewer than 20 employees, 68.2% fewer than 50 employees, 74.4% fewer than 100 employees, and 86.4% fewer than 500 employees.
• Among all identified U.S. firms importing from China, 74.6% had fewer than 20 employees, 84.8% fewer than 50 employees, 90.0% fewer than 100 employees, and 96.6% fewer than 500 employees.
Self-Employed Trending Down
Based on U.S. Bureau of Labor Statistics data (Table A-9),the level of entrepreneurship in the U.S. actually has declined, or at least stagnated, in recent years.Consider data on the number of self-employed.
Incorporated self-employed:
● Incorporated self-employment fell from 5.78 million in 2008 to 5.13 million in 2011.
● It climbed back to 5.85 million in 2017.
So, it took nearly nine years for the number of incorporated self-employed to get back to its 2008 level. That was followed by no growth in 2018. But increases in the following two years took the number of incorporated self-employed to 6.28 million in 2020. However, the ills of the pandemic showed up in this data starting late in 2020. The number of incorporated self-employed declined to 6.12 million in 2021.
Unincorporated self-employed:
● The number of unincorporated self-employed declined from 10.59 million in 2006 to 9.36 million in 2014.
● Uneven growth resumed, with the level hitting 9.71 million in 2018. However, that was followed by marked declines in 2019 and 2020. The 2020 level of 9.25 million was the lowest since 1983. Growth actually resumed, however, in 2021, with the number of unincorporated self-employed reaching 9.96 million.
● Starting in July 2021, the seasonally-adjusted data on unincorporated self-employed moved about the 10-million mark for the remainder of the year. The last time the 10 million level had been hit was March 2009.
Incorporated and unincorporated combined data:
● The total number of self-employed (incorporated plus unincorporated) hit 16.15 million in 2007, but then declined for five years, registering 14.72 million in 2013.
● Some growth resumed, with the total climbing back to 15.72 million in 2019, and then dropping to 15.54 million in 2020. However, growth resumed in 2021, with the total tally coming in at 16.07 million – which unfortunately was still just short of the 2007 recent high.
Of course, when considering the increase in population since 2007, stagnation in self-employment becomes a relative decline.
Survival Rate for Small Businesses
According to the SBA’s Office of Advocacy:
“From 1994-2019, an average of 67.6% of new employer establishments survived at least two years. During the same period, the five-year survival rate was 48.9%, the ten-year survival rate was 33.6%, and the fifteen-year survival rate was 25.7%.”
On Small Business Financing
According to the SBA’s Office of Advocacy:
•Financing startups: “Startups make heavy use of personal equity and traditional debt, with over half using their own personal savings. Census Bureau data show that employers made greater use of financing than did nonemployers, but also continue to rely on personal savings. Roughly 30% of new nonemployer firms and 7% of employer firms used no startup capital.”
•Business expansion: “Existing businesses use similar financing vehicles as startups to finance expansion. Personal savings are the most common source of expansion finance, followed by reinvestment of business profits.”
See the Office of Advocacy’s Small Business Financing: Frequently Asked Questions
More Details on Small Businesses
According to the SBA’s Office of Advocacy:
Start-up employment level: “In 2019, startup employment averaged 3.3 employees per establishment. Average employment at establishments of all ages was 15.3 employees.”
Self-employment by age: “According to Census Bureau data, the share of self-employed Americans (including incorporated and unincorporated) age 30 or under increased slightly from 6.7% in 2013 to 7.4% in 2018. During the same time frame, the share of self-employed age 65 and over increased from 14.0% to 16.3%.”
Franchises: “In 2017, there were roughly 500,000 franchise establishments with a combined 9.6 million employees.”
Family-owned businesses: “About 29% of employer firms were family-owned in 2018. Family- owned firms employed 10 employees per firm, while non-family- owned firms employed 8 employees per firm.”
Women-Owned Firms
According to a March 2021 article by Barbara Weltman:
“According to the 2020 report from National Women’s Business Council (NWBC) … Women-owned businesses represent 42% of all U.S.businesses (about 13 million), have 9.4 million employees, and $1.9 trillion in revenue. But nearly 90% of women-owned businesses had no employees. Nonetheless their revenue topped $229 billion.”
The SBA’s Office of Advocacy adds:
“Women owned 1.1 million employer firms in 2018, which represented 20 percent of all employers. Women also owned 10.6 million nonemployer firms in 2017, or 42 percent of all nonemployer firms…”
