SMBs and Job Growth

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Check out the article in the WSJ about job creation.  It does get a point across, but elucidation is probably relevant.
  1. Gross job gains are different from Net job gains. The St. Louis Fed found that while SMBs have hight rates of job creation, they have quite high rates of job destruction too.  So, if you focus on the SMB space, be prepared for high churn!
  2. SMBs grow much more slowly than large companies.  It turns out that most "small businesses" in the US are businesses that start (and remain!) small (e.g., craftsmen, lawyers, small shopkeepers, etc.).  Research shows that most of these businesses exist for non-pecuniary reasons (being your own boss, flexibility of hours, etc.), and growth is really not a focus (read the abstract on the link!)
  3. Startups that survive are the ones most likely to create new jobs.  This is the subset of both (1) and (2) above that still exist, i.e., companies that dont fail, and are actually ones that are in growth mode.  Note that people's perspective on startups tends to be skewed by the high-viz industries (we always think of SF/NY, or a couple of hipsters, when it comes to new businesses. *not* Bob the pizza guy who is happy making pizzas, and has no intention of expanding)
The bottom line?
  • Focusing on SMBs means high customer acquisition rates, but potentially high churn
  • SMBs probably wont expand all that much (no new users.  You can probably up-sell new services though!)
  • A (small) subset of SMBs will grow, but unless you are lucky, it will only be a small set.  If you can predict them though, you should be in the VC biz!


Comments

dieswaytoofast said…
And a followup by Felix Salmon - http://blogs.reuters.com/felix-salmon/2011/10/24/the-unhelpful-lionization-of-small-business/
October 24, 2011 at 10:42 AM
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