The Guts of our Economy
All kinds of people start all kinds of businesses for all kinds of reasons. Individually their stories are inspiring, but seen as a whole, they’re awe-inspiring. But who are these independents?
Independent businesses are the foundation of our economy. You can think of them as the economic equivalent of the microbiome we all walk around with in our guts: vast, complex, essential and generally unnoticed or taken for granted. This week we’ll take a bird’s eye view of the independent landscape, set some clear definitions and hopefully shed some new light on this critical group.
First, a simple definition. When we talk about the independents, we mean:
- People who own businesses with fewer than 20 employees
- People who own businesses without any employees
- Freelancers or independent contractors
Let’s take a look at how that breaks down.
Businesses with employees
The Small Business Administration defines any business with fewer than 500 employees as “small”. By this definition 99.7% of US businesses with employees qualify, and more than half of all Americans work for small businesses. But as anyone who has started or run a business will tell you, several hundred employees isn’t really all that small.
For our purposes, independent businesses are the smallest of the small businesses; those with fewer than 20 employees or with no employees at all. Of course, where we “draw the line” is somewhat arbitrary and there are certainly bigger businesses that we’d naturally characterize as indies.
They're electricians, accountants, hair stylists, physical therapists, computer programmers, craftspeople, store owners, artists, teachers, acupuncturists, pastry chefs; really anyone you can think of.
Perhaps surprisingly, a very small fraction, less than 1%, are innovative high-growth tech “startups”.
Women own 10 million of these businesses or approximately 35% of them, and an additional 9% are equally owned by both women and men. African Americans, Hispanics and immigrants own businesses in growing numbers, as do veterans.
Businesses without employees
The vast majority, about 80%, of companies in the U.S. have no employees other than the owners. Not only is the biggest sector in terms of the number of firms, it’s also the fastest growing, up to almost 24 million companies from only 22 million in 2007 and 15 million in 1997.
Historically economists and policy makers have discounted the important of firms without employees. They've been considered to have a minimal impact on the economy in terms of job creation and innovation. But consider that these firms have more than $1 trillion dollars in revenue each year or an average $44,000 per firm. As with any average, keep in mind that some firms will make much more than this and many other will make much less.
Freelancers and independent contractors
It’s estimated that all the net employment growth in the US in the last ten years has come from people working in “alternative work arrangements”, primarily those working as independent contractors, consultants and freelancers. The percent of Americans working full-time in these roles rose from 10.1 percent in February 2005 to 15.8 percent in late 2015.
If you include those who freelance occasionally or on a part-time basis, it’s estimated that as many as 41 million Americans work independently in some capacity and that number could rise to 60 million within the next few years.
One thing to note: because of the way that these statistics are measured, there’s overlap between independent contractors and those owning non-employer businesses.
Beyond the numbers
Critically, small independent businesses keep our economy moving. They're the essential component without which the entire system would freeze up.
But the numbers don't tell the most important story; the ways in which independents make all of our lives richer and more varied. These are the stories that we'll work to tell as we continue to go deep on the vital role played by independents.
Next week we’ll look at the indie.biz Manifesto and talk about a new vision for serving the needs of independent businesses.
Want to dig deeper? Here are some resources to check out:
US Census, Business Dynamics Statistics
US Census, Nonemployer Statistics
US Census, Small Business Resources
Small Business Administration, Firm Size Data
Small Business Administration, Research and Statistics
Small Business Administration, State and Territory Factsheets
Small Business Administration, US Factsheet
Here’s how it works. A non-employer business is any self-employed person reporting more than $1,000 per year in income. Independent contractors on the other hand, are self-employed people whose work is paid by other companies. Another way to think about it: all independent contractors are self-employed, but not all the self-employed are independent contractors. ↩︎